There's no denying that investing in small-cap stocks is exciting. By looking specifically at companies with market caps below $2 billion, you're filtering out a lot of the more proven, steady performers. But there's no shortage of growth, income, and value investments available in this range -- as long as you can tolerate the inherent risks.
For example, Tanger Factory Outlet Centers (SKT 0.53%) offers a chunky yield in a retailing niche that some see as an all-weather play. Sonos (SONO -2.09%) is a tech pioneer with an impressive winning streak when it comes to growing revenue. And PagerDuty (PD -1.38%) is a formerly high-flying IPO that has fallen on hard times. Here's why those three are among the best small-cap stocks investors can buy this month.
Image source: Tanger Factory Outlet Centers.
Tanger Factory Outlet Centers has what shoppers want
The first thing about Tanger that will likely catch your eye is the stock's current yield of 9.1%. The operator of factory outlet malls, with a market cap of $1.5 billion, is structured as a real estate investment trust (REIT), which means it's required to hand over most of its funds from operations to its stakeholders in the form of beefy quarterly distributions.
Shoppers can be fickle, but Tanger's niche -- locations where popular brand sell their closeout stock, clearance items, and lower-quality wares at deep discounts -- is always in fashion. Tanger isn't having a problem filling up its malls. It enjoys a 96% occupancy rate, and its tenants have seen their collective sales climb 3% over the past year. Problems for Tanger can arise when one of its retail chain tenants files for bankruptcy or has to scale back its footprint, but those seem like risks worth taking for income investors in pursuit of big payouts.
Audiophiles keep turning up for Sonos
Unless you happen to live in one of the 9 million homes across the planet where one or more of Sonos' products is providing the audio, you may not be familiar with this patent-rich company that put high-quality wireless home sound systems on the map. In a world where tech giants are churning out dirt-cheap smart speakers, and much media both visual and audible is delivered via gadgets we slide into our pockets, it might seem like a challenge for a specialist like Sonos to stand out, but it's getting the job done.
Just a few weeks ago, Sonos delivered the final report of its fiscal 2019 -- its 14th straight year of revenue growth. The $1.5 billion market cap company keeps building up its product line. It recently introduced its first portable speaker, and its shrewd partnership with IKEA includes a slick table lamp that incorporates a hi-fi speaker into its base. That lamp speaker sold 30,000 units on its first day of availability.
The company added 1.7 million new households to its roster in fiscal 2019 -- and once someone buys into the brand, they tend to stick to its ecosystem. The average Sonos household contains 2.9 of its products. There is plenty of cutthroat competition out there, but Sonos is no shrinking violet at the high end of this market.
Cloud computing newcomer PagerDuty can head skyward again
Newly public stocks can quickly go from feast to famine for investors -- but in this case, the situation could go from feast to famine to opportunity. PagerDuty offers a cloud-based platform that helps companies collect real-time event signals, and uses machine learning and human-response data to improve user experiences. It went public in April at $24 and shot to $60 two months later.
It didn't stay hot. PagerDuty went on to more than give back all of those gains, and it's now one of the many broken IPOs of the 2019 class. The latest hit to the stock came last week after management posted disappointing third-quarter financial results. Its dollar-based net retention rate -- an industry metric that translates into existing customers spending more on the platform -- has gone from an impressive 140% at the time of its IPO to 132% and now 129% in its two first quarterly reports as a public company. Decelerating revenue growth and red ink are also scaring away investors, dragging its market cap down to $1.7 billion.
The good news is that investors can now get into a company that's still growing at an impressive clip, and for less than its IPO buyers paid. PagerDuty boosted its revenue guidance for the current fiscal year, and is forecasting growth in the 40% to 41% range for fiscal 2020. The company's stock may be out of favor now, but there's nothing wrong with a net retention rate of 129% or top-line growth of at least 40%.
