Best Small-Cap Value Stocks To Buy In May 2023

Top small-cap stocks this month include Prometheus Biosciences Inc., Arcellx Inc., and Madrigal Pharmacueticals Inc., all of which have risen more than 300% in the past 12 months, while the Russell 2000 Index, a broad measure of U.S. small-cap stocks, is down almost 1%.

Below, we list the top three small-cap stocks in each category: value, growth, and momentum. All data are as of May 8.

Best Value Small-Cap Stocks

These are the small-cap stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profit can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you're paying less for each dollar of profit generated.

Best Value Small-Cap Stocks
 Price ($)Market Cap ($B)12-Month Trailing P/E Ratio
Jackson Financial Inc. (JXN)34.932.90.5
SilverBow Resources Inc. (SBOW)22.600.51.0
Theravance Biopharma Inc. (TBPH)11.330.71.0
  • Jackson Financial Inc.: Jackson Financial is a financial holding company offering annuities to retail investors across the U.S. Its subsidiaries include Jackson National Life Insurance Co., Jackson National Life Insurance Co. of New York, and PPM America. On May 9, the company released its first-quarter earnings, reporting a net loss of $1.5 billion and a revenue deficit of $749 million. Jackson's earnings were hit by large realized derivative losses.1
  • SilverBow Resources Inc.: SilverBow Resources is an oil and gas company that focuses on acquiring and exploring properties in Texas.
  • Theravance Biopharma Inc.: Theravance Biopharma is a biopharmaceutical company in the Cayman Islands that develops and manufactures respiratory medicines such as Yupelri and Trelergy to treat COPD.

Fastest-Growing Small-Cap Stocks 

These are the top small-cap stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth.

Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax laws or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 1,000% were excluded as outliers.

Fastest-Growing Small-Cap Stocks
 Price ($)Market Cap ($B)EPS Growth (%)Revenue Growth (%)
ShockWave Medical Inc. (SWAV)288.2810.599171
Frontline PLC (FRO)15.103.4980148
Sun Country Airlines Holdings Inc. (SNCY)17.631.096730
  • Shockwave Medical Inc.: ShockWave produces intravascular lithotripsy devices for the treatment of calcified cardiovascular disease using pressure waves. On Jan. 17, ShockWave announced its agreement to acquire Neovasc, a Canadian medical device company, for a total of $100 million.2
  • Frontline PLC: Frontline is a Bermuda-based crude oil transport company with a fleet of 70 ships. Net income in the fourth quarter of 2022 soared 12-fold to $240 million—the most since 2008—due to a steep increase in demand in China and larger crude carriers being utilized.3
  • Sun Country Airlines Holdings Inc.: Sun Country is a low-cost airline that operates cargo and passenger flights within North and Central America. The company reported first-quarter earnings on April 27, with net income surging more than tenfold on a 21% increase in average fares and a 40% increase in charter service revenue.4

Small-Cap Stocks With the Most Momentum

These are the small-cap stocks that had the highest total return over the past 12 months.

Small-Cap Stocks With the Most Momentum
 Price ($)Market Cap ($B)12-Month Trailing Total Return (%)
Prometheus Biosciences Inc. (RXDX)194.209.3564
Arcellx Inc. (ACLX)43.582.1367
Madrigal Pharmaceuticals Inc. (MDGL)306.375.6361
Russell 1000N/AN/A3
Russell 2000N/AN/A-1
  • Prometheus Biosciences Inc.: Prometheus is a biotech company that develops treatments for inflammatory bowel disease (IBD); its flagship product is PRA023, which is positioned for stage 3 clinical trials. The company's share price increased by over 335% in December following positive Phase 2 results for PRA023.5 On April 16, Merck (MRK) announced it would acquire Prometheus for $200 a share, a 75% premium on the company's $114 shares.6
  • Arcellx Inc.: Arcellx is a biotechnology company that engineers novel immunotherapies to treat cancer and similar diseases. Arcellx shares jumped several times last year on news of positive results in a clinical trial of its myeloma treatment CART-ddBCMA.7
  • Madrigal Pharmaceuticals Inc.: Madrigal Pharmaceuticals is a biopharmaceutical company that develops treatments for non-alcoholic steatohepatitis (NASH), a liver disease. In December, the company saw a 360% increase in share price due to the release of positive topline results for the phase 3 clinical trial of Resmetirom to treat liver disease.8

Things to Consider When Analyzing Small-Cap Stocks

Management Quality: A competent management team is essential for any company, let alone a smaller one trying to establish itself in the market. Potential investors should undertake some basic online research on the key people within the company, such as the chief executive officer (CEO) and CFO. Do they have a track record of running successful businesses? Also, see if the leadership team owns shares in the company. Company insiders owning stock indicates a commitment to success and aligns their interests with those of the shareholders.9

Growing Sales: Small-cap companies typically have limited cash flow—therefore, they must generate healthy sales. As a rule of thumb, small-cap investors should look for stocks with a strong annual revenue growth rate, which indicates that a company has the potential for disruptive innovation within its industry and is well-positioned to generate a future profit. Investors can find this information on Yahoo! Finance under the “Financials” tab, which shows a company's revenue for the past four years.10

High Operating Margins: A company's operating margin represents how efficiently it can generate profit through its primary operations before paying interest and tax. When investing in small caps, it is a good idea to look for consistently increasing operating margins, as this indicates that a company is good at turning sales into profits.9

Advantages of Small-Cap Stocks

Growth Potential: Small-cap stocks provide investors with significant upside by getting in early before a company potentially goes on to become an industry leader. Moreover, small-cap stocks with a market cap of under $1 billion can double in value much easier than massive companies such as Amazon or Apple that have $1 trillion-plus market caps, as it takes far less money to move their share price. Also, a small-cap stock that goes on to realize rapid growth can gain the attention of Wall Street analysts and institutional investors, which can increase shareholder returns even further.11

Less Competition from Larger Investors: Institutional investors⁠—such as banks, hedge funds, and REITs⁠—typically stick to investing in large-cap stocks, often overlooking many small-cap opportunities. This allows retail investors to buy the story of a future company of tomorrow without competing with traditional Wall Street money.

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