If wagering on small-capitalization companies wasn’t enough of a challenge, you could be interested in micro-cap stocks to buy. And if you think I’m about to launch into a warning, you’re absolutely right. Generally speaking, rational investors don’t put much money (if at all) in this “asset” category.
Look, it’s not about disrespecting the enterprises that comprise this category. However, you’re dealing with organizations that carry a market cap of less than $300 million. And some of these micro-cap stocks go well below this threshold. It’s just about the last stop before penny stock territory (which may then lead to a delisting). Think of so-called undervalued micro-cap stocks as Indian Red scorpions. Is it really a good deal?
I’m going to try my best to direct you to compelling and viable entities. However, let the buyer beware.
Micro-Cap Stocks: Universal Technical Institute (UTI)
A private, for-profit educational firm, Universal Technical Institute (NYSE:UTI) might not immediately seem an intriguing idea for micro-cap stocks. However, its classes, designed to teach mechanical acumen, could be supremely valuable. With digital technologies such as artificial intelligence becoming far more integrated into society, there will likely be less demand for office-related occupations.
And that goes for science, technology, engineering, and math roles. If you’re not particularly valuable in the technical sphere, AI can do much of the heavy lifting. For example, with enough patience, you can use free generative AI software to build various applications with C++ or whatever. But when the smelly stuff literally hits the fan? AI can’t do…uh…you know what I mean.
And you know what? UTI could be one of the undervalued micro-cap stocks based on its enterprise-value-to-revenue ratio of 0.98X, below the sector median of 1.76X. Finally, analysts peg UTI as a strong buy with a $10.67 price target, implying nearly 25% upside potential.
Previously known as ShotSpotter based on its controversial product, SoundThinking (NASDAQ:SSTI) is a gunfire locator service. Per its public profile, the company claims it can identify whether a gunshot actually erupted in an area, thereby enabling the quick dispatching of law enforcement officers. Given the horrible firearms-related incidents that have plagued this country, SSTI seems like a reasonable idea for micro-cap stocks.
However, it’s not without controversies. According to the American Civil Liberties Union, the underlying detection system presents technical issues related to false alarms. That’s going to be problematic during a time when fewer people are willing to become police officers. Further, these unnecessary trips may also trigger misunderstandings between law enforcement and the communities they serve.
Still, the violence problem puts SoundThinking in an “ideal” situation, for lack of a better word. Financially, the company has printed an impressive three-year revenue growth rate (per-share basis) of 24.1%. Lastly, analysts peg SSTI a strong buy with a $30.83 price target, implying nearly 51% upside potential.
A multinational technology firm, Vuzix (NASDAQ:VUZI) is a supplier of wearable display tech, virtual reality, and augmented reality. Per its public profile, the company’s personal display devices are used for mobile and immersive AR applications, such as 3D gaming, manufacturing training, and military tactical equipment. Since the January opener, VUZI gained only 2.2%, making it one of the undervalued micro-cap stocks to buy on a relative basis.
Undergirding the bullish thesis for Vuzix is its massive total addressable market. For example, Grand View Research reports that the global VR industry reached a valuation of $59.96 billion last year. Moreover, experts project that the segment will expand at a compound annual growth rate (CAGR) of 27.5% from 2023 to 2030. At the culmination of the forecast, the industry could print revenue of $435.36 billion.
Still, aside from a strong cash-to-debt ratio of 77.36x, Vuzix suffers from rather poor financial stats. You just need to be ready for that. But on a positive note, analysts peg shares a strong buy. As well, their average price target lands at $30.83, implying nearly 51% upside potential.
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Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.