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3 Top Small-Cap Stocks to Buy in April

By Travis Hoium – Apr 5, 2020 at 7:33AM

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Big isn't always better for long-term investors.

Small-cap stocks have been hit particularly hard by the COVID-19 pandemic as investors flee to stocks they consider "safe" investments. But there are still companies that are built to survive the current crisis and thrive long-term. 

iRobot Corporation (IRBT -0.34%), Canadian Solar Inc. (CSIQ -1.45%), and Yeti Holdings Inc (YETI -4.02%) are all in growing markets long-term, and they have the balance sheet and flexibility to get through the current downturn. Here's why I like these small-cap stocks today. 

Miniature figurine looking at a growing stack of coins.

Image source: Getty Images.

Our robotic future

There's no good time for a slowdown in consumer spending to hit, but for iRobot it's fortunate it came early in the year. Nearly 60% of the company's revenue comes in the second half of the year, which includes the all-important holiday season. 

IRBT Revenue (Quarterly) Chart

IRBT Revenue (Quarterly) data by YCharts

There's no question that revenue will be hit hard by the current economic slowdown. Management recently said first-quarter revenue would be down from $237.7 million a year ago to between $175 million and $185 million. And for the entire year the company might not even be profitable, and that's where the balance sheet becomes important. 

iRobot has $256.4 million of cash and short-term investment on its balance sheet and no debt. That will give the company flexibility to get through the current crisis and come out better on the other side. 

Solar energy is still booming

The last decade in the solar industry has been marred by high-profile bankruptcies and sluggish stock prices, but the industry continues to grow. Solar capacity worldwide has grown about 20x in the last decade and is setting records each year. 

One of the companies leading the way is Canadian Solar, the manufacturer of solar panels and developer of solar projects worldwide. Before the current upheaval, the company was generating improving margins and was solidly profitable for a company with a market cap of $909 million. Long-term, those trends should continue, even if 2020 is an outlier. 

CSIQ Revenue (TTM) Chart

CSIQ Revenue (TTM) data by YCharts

The one downside is that Canadian Solar has $1.95 billion of debt on the balance sheet. That's partially offset by $1 billion in the estimated value of solar projects, but if there's a protracted downturn in energy development worldwide, the company's leverage will be its one point of weakness. For now, I think the upside outweighs the risk. 

A great consumer brand on sale

Yeti is a consumer brand that seems as indestructible as its drinkware and coolers. The company's products are everywhere, and it continues to broaden the product line to include new products. Plus, it's just scratching the surface of its growth potential with only 4% of sales coming in international markets. 

It's very likely that Yeti will see sales suffer from COVID-19, just like any other consumer discretionary brand, but it's in a relatively strong financial position with $72.5 million in cash on the balance sheet, $150 million available for borrowing under a revolving credit facility, and no significant debt maturities until 2024. That should give it enough cushion to get through the next few quarters. 

On the other side of this crisis, I think picking up Yeti at a $1.5 billion market cap with trailing sales of $914 million and a 47% growth rate over the last six years will be a great investment. There may be volatility along the way, but I think long-term investors are getting a great brand at a great price. 

Risks worth taking

Small-cap companies are certainly risky right now, and we don't know when business or consumer spending will return to any level of "normal." For investors willing to buy and hold stocks, I think iRobot, Canadian Solar, and Yeti are well-positioned to succeed, and that's why they're my top small-cap stocks today. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends iRobot. The Motley Fool has a disclosure policy.

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Stocks Mentioned

iRobot Stock Quote
$57.81 (-0.34%) $0.20
Canadian Solar Inc. Stock Quote
Canadian Solar Inc.
$36.84 (-1.45%) $0.54
YETI Holdings, Inc. Stock Quote
YETI Holdings, Inc.
$31.04 (-4.02%) $-1.30

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