Large cap stocks usually generate the most headlines, but small caps can offer tremendous gains that are hard to come by.
But small caps can scare off investors because they can be more volatile and thus more risky, and it can be difficult to learn their stories with less media coverage.
However, there are hidden gems among the small caps, and these two stocks certainly fit the bill. And both could deliver 100%+ gains if things shake out according to plan.
Here’s what you need to know about these two small cap stocks.
Overstock (NASDAQ: OSTK)
Overstock (NASDAQ: OSTK) isn’t exactly an unknown company. You’ve likely seen their television commercials advertising everything from couches to jewelry that you can buy on their platform.
Overstock has taken on several forms over the course of its life as a public company. Last year, the company entered the blockchain universe and shares rose to $90 from around $15 in 6 months. But then the hype surrounding bitcoin and blockchain diminished, and so too did OSTK. Shares now trade at $28.
But while the stock is down, it certainly is not out.
According to Maxim analyst Allen Klee, who recently gave OSTK a Buy rating with a price target of $75, there’s reason to be bullish on the stock.
In a note to clients, Klee wrote “In our view, there is a disconnect between OSTK’s stock price and the large opportunities in its blockchain investments, particularly tZERO. tZERO has a first-mover advantage through its ATS, SEC approval to trade initial coin offerings (ICOs) and partnership with BOX Digital Markets – private securities represent a $5+ trillion annual market. We expect a pickup in demand as SEC requires ICOs to be deemed securities and trade on a registered exchange or ATX, and tZERO launching ability to trade Reg S securities in 2H18 and Reg D 1H19.”
He added, “We expect improving retail segment results and/or sale and recognition of value of blockchain investment will be catalysts for the stock.”
The average analyst twelve-month price target for OSTK is $93.50, indicating possible upside of 252% from Tuesday’s closing price. DA Davidson recently boosted its price target for the stock from $90 to $112 – a whopping 321.8% higher than the price as of this writing.
Arlo Technologies (NYSE: ARLO)
ARLO initially priced below range, then rallied, and has since fallen nearly 30% in the last month.
But there’s reason to be excited about ARLO. The company is the premier manufacturer of wireless home security cameras, with 40% market share by sales.
In Q2, the company reported a jump in revenue of 40% after the success of its continued rollout of its battery-operated and weather-resistant Arlo Pro 2 Wi-Fi camera. Overall, the number of devices shipped grew 32% to 1 million, and the number of registered users on Arlo’s cloud-based monitoring platform more than doubled to 2.2 million.
That last piece is important as the company is trying to make the jump from hardware provider to services provider. In its Q2 report, the company posted $111 million in revenue, of which, only $9 million came from services. However, that was up 38% from the same period last year.
Making the move into services seems like a smart move as consumers won’t feel the need to upgrade their home security cameras to the latest and greatest model every year, and the company’s Arlo Smart paid subscription service would bring in recurring revenue.
But converting people may not be easy, especially since Arlo’s cameras already come with rolling seven-day cloud storage of customers’ video feeds free of charge. The Arlo Smart subscription does, however, give users longer storage, enhanced video capabilities, and law enforcement notifications for suspicious activity recorded on the cameras, which may prove enticing enough to convince users to convert and subscribe.
And if Arlo is able to demonstrate that it can continue to grow its Arlo Smart services base, and is able to continue to gain market share in the home security camera hardware market, we could see the share price shoot much higher.
Analysts’ average price target for ARLO is $29, suggesting potential upside of 110.76% over the next twelve months. On Monday, Imperial Capital set a price target for the stock of $39 – 183% higher than the current price.