While small-cap stocks often experience more volatility than their large-cap counterparts, they can also produce more long-term growth for patient, risk-tolerant investors. We asked three of our Motley Fool contributors to discuss their current favorite small-cap stocks. Here's why they think BlackLine (NASDAQ:BL), Axos Financial (NYSE:AX), and Bank of Hawaii (NYSE:BOH) are worth a closer look.

An accounting-as-a-service solution

Matthew Cochrane (BlackLine): BlackLine offers cloud-based software-as-a-service solutions to enterprise clients that allow them to perform continuous accounting, meaning that they can reconcile transactions in real time, and do not have to close the books at the ends of months or quarters. This gives BlackLine's customers access to current information, and automates tedious tasks that previously ate up a lot of employee hours.

Happy man using laptop.

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In 2018, revenue rose to $227.8 million, a 30% increase over 2017, while free cash flow grew to $4.2 million, up from a loss of $2.2 million the year before. In Q4, BlackLine added 137 net new customers, bringing its total to 2,631, a 19% increase year over year. Once customers start using BlackLine's platform, they rarely leave. In Q4, BlackLine experienced a 98% customer retention rate, clearly demonstrating the value in the service. 

Customers are not just staying, either; on average, they are spending a little bit more every year. The company's dollar-based net revenue retention rate was 108% in the fourth quarter, meaning that existing customers from 2017 spent 8% more this year than last. BlackLine's management is working diligently to add more accounting-software solutions to its suite of products, so that these customers will continue spending more year after year.  

A small bank that could become much larger

Matt Frankel, CFP (Axos Financial): Formerly known as BofI Holding (or Bank of Internet), Axos Financial is an online-only bank with strong growth. And, with shares still trading for nearly 30% below their 52-week high, it could be a major bargain in an otherwise expensive stock market.

Because of its branchless structure, Axos runs a much leaner operation than its peers. In fact, its noninterest expense as a percent of assets is nearly a full percentage point less than its peer group, 1.86% vs 2.82%.

Growth has been quite impressive in recent years. Over the past year, Axos has grown its deposit base by 12.8% and has seen its asset size jump by 10%, which has resulted in a 27% increase in EPS. In fact, EPS has grown at a 27% annualized rate since 2013, and book value per share has increased more than threefold during that time.

Even with its impressive growth, Axos remains a small bank. Its asset size of roughly $10 billion puts it in the same category as institutions such as Provident Bank and Renasant Bank, and just smaller than Cadence Bank. If you just said "who?" -- well, that's kind of the point. Axos is still a very small institution, so there's no reason to believe that its growth story can't continue for years to come. And with largely untapped product lines like personal lending and auto loans, as well as a highly successful (but still rather new) partnership with H&R Block, the bank has plenty of opportunities to achieve growth.

Go West

Dan Caplinger (Bank of Hawaii): Having a competitive moat is an important asset in a competitive industry, but very few companies can claim an actual physical moat that stretches for thousands of miles. And for Bank of Hawaii, the geographical isolation of the Hawaiian Islands from the U.S. mainland has largely insulated it from the competitive pressure that the largest American banks have had across the continental 48 states. And that leaves it in an ideal situation to cater to Hawaiians with tailored service to meet their local needs.

Conditions for Bank of Hawaii remain favorable. The bank recently reported $17.4 billion in assets as of the end of the first quarter of 2019, with roughly $5.5 billion in investment securities and $10.5 billion in loans and leases to go along with $15.3 billion in deposits. Healthy economic conditions in Hawaii persisted during the period, with low unemployment and a strong real estate market featuring rising home prices amid modest declines in sales activity. Moreover, with more airlines looking to bring travelers to the islands, Bank of Hawaii anticipates greater tourist activity, helping to boost the local economy even more.

Bank of Hawaii pays a healthy dividend that works out to a current yield of 3.2%, yet it only pays out less than half its earnings, giving it plenty of room to handle economic downturns without putting undue stress on its operational stability. That income and the bank's growth opportunities make Bank of Hawaii and its modest $3.4 billion market cap worth a second look.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.