Big Tech has hogged the stock market limelight for over a year, draped in the AI narrative. However, now, it’s time for small-cap firms to strut their stuff. With a scent of potential rate cuts in the September air, small-caps are stealing the thunder amid an underwhelming Q2 performance by tech giants like Tesla and Alphabet, tarnishing the Nasdaq Composite to a degree not seen since 2022.
Tom Lee, head of research at Fundstrat, believes small-cap stocks are ripe for a seismic shift, fueled by a pleasantly surprising CPI in June. Lee presents small caps as the new “it” thing in town, forecasting a whopping 50% uptick by 2024. Excited by promising signs, Lee sees smaller players as a juicy investment dish in the current climate.
First Small-Cap Gem: Archer Aviation
Valued at $1.41 billion, California’s Archer Aviation Inc. is taking the urban air mobility space by storm with their innovative electric vertical takeoff and landing (eVTOL) aircraft. Revolutionizing city transit with its air taxi services, Archer’s eVTOL promises a seamless urban travel experience. Leading the aviation electrification charge, Archer spearheads the next transportation rejig with its avant-garde technology.
ACL stock has been on a rollercoaster, plummeting nearly 29% YTD but bouncing back with a 17% turn in the last month.
Despite Archer’s $116.6 million loss in Q1, the company maintains a solid financial stance with $523 million in liquidity reserves. This robust footing empowers Archer to pursue aggressive aircraft development, gearing up for a grand commercial launch.
Archer’s Q1 showcased stellar progress with its flagship eVTOL, Midnight, boasting over 100 flights and cruising towards its year-end 400-flight objective. The recent FAA nod was a significant shot in the arm, propelling Archer closer to unfurling its electric air taxi service street-side – a peek into the future of urban air commute.
Archer’s eyes are now set on FAA certification for Midnight, a pivotal step in their pursuit. Anticipating non-GAAP operating expenses of $80-95 million for Q2, slated for reveal post-market closure on August 8, the company gears up for more milestones.
Analysts foresee Archer’s fiscal 2024 loss shrinking by 21.3%, with an additional 14.3% dip projected for 2025. A consensus “Strong Buy” prevails among analysts, with a notable uptick in forecasted price targets.
The average price target suggests a remarkable upside of 97.3% from current levels, with a high target forecasting a potential 173.9% rally.
Second Small-Cap Pick: Similarweb
Israel’s Similarweb Ltd., sporting a $511 million market cap, dances to a different tune with its web analytics expertise. Pioneering digital data insights, Similarweb directs businesses towards online glory, aiding in smart decision-making to keep ahead in the digital game.
With a staggering 22% YTD surge, Similarweb outshines the S&P 500 Index’s 13.8% return over the same period.
Similarweb’s Q1 earnings sprinted past expectations, recording a 12% YoY revenue increase to $59 million. The company also trimmed its losses significantly to $0.03 per share, marking a notable rebound from past quarters.
The quarter also saw Similarweb flip its non-GAAP operating profit to a positive $0.04 per share, a stark departure from Q1 of fiscal 2023. The addition of $9.7 million in free cash flow further fueled the Q1 success, accompanied by a robust customer base increase to 4,844.