It's been a tough year for small-cap stocks.

The Russell 2000 (INDEX:^RUT) small-cap index is still down 6% year-to-date, trailing both the S&P 500, which has gained 5% and the Nasdaq, which has surged 26% as large-cap tech stocks have been big winners during the pandemic.

A hand holding a small plant

Image source: Getty Images.

The coronavirus crisis has generally been harder on small companies than larger ones as big businesses tend to have more cash on hand, easier access to credit, and recession-tested business models. However, it's still worth taking a look at some small-cap stocks, especially because these companies, valued between $300 million and $2 billion, generally have much longer growth runways than larger stocks. It's much easier for a $1 billion company to become a $10 billion company than it is for a $100 billion company to become $1 trillion one.

On that note, let's take a look at three small-cap stocks that have surged this year and could have more big gains in store: ACM Research (ACMR -2.82%)Celsius Holdings (CELH 0.49%), and GrowGeneration (GRWG -9.69%).

A semiconductor wafer undergoing a probe test

Image source: Getty Images.

ACM Research

Despite jumping more than 400% this year, ACM Research has been mostly ignored by the financial media. The company makes equipment to clean semiconductor wafers, making it something of a picks-and-shovels play in semiconductors, which is an expanding industry as digital equipment moves toward 5G protocols and as people around the world become more reliant than ever on tech devices during the pandemic. ACM is based in California, but most of its operations take place in China near the chip manufacturers that make up its customer base.

In its most recent quarter, ACM's revenue rose $34.6% to $39 million, and adjusted operating income grew 55.1% to $8.2 million. Unlike most fast-growing small caps, ACM is solidly profitable with an enviable operating margin at 20%. It also just raised its revenue guidance for the full year from $130 million-$150 million to $140 million-$155 million, calling for 37.2% top-line growth, an acceleration after a sluggish start to the year because of COVID-19.

ACM spends about an eighth of its revenue on research and development, and it says that most of its competitors offer single wafer-cleaning products using jet spray technology, which has poor particle removal performance on small defects. Its technologies, including Space Alternated Phase Shift (SAPS), has been shown to be more effective at removing defects on a wafer than conventional megasonic and jet spray technologies, giving the company a competitive advantage.

ACM sees an addressable market of at least $3 billion for its products, meaning it can grow its revenue several times before exhausting its current market, and it trades at a P/E valuation of 84, meaning the stock should be able to move higher as it grows.

Cans of Celsius Heat in an ice chest

Image source: Celsius.

Celsius Holdings

Celsius Holdings has taken the market by storm lately as the stock has jumped more than 300% since the beginning of May. Shares of the fast-growing fitness drink maker have been soaring since it posted an impressive quarterly report in May, and investors are hopeful that it could be the next Monster Beverage as shares of the popular energy drink maker turned $1,000 into more than $10 million for early investors.

In its most recent quarter, Celsius's revenue grew 86.3% to $30 million, and the company is now profitable, posting net income of $1.6 million in the quarter. Its growth has been fueled by distribution agreements with beverage giants including Anheuser BuschPepsico, and Keurig Dr.Pepper, and it's now available at 74,000 retail locations around the country.  

With its current revenue level, the company has reached a viability threshold where beverage giants like Coke and Pepsi would consider acquiring it, though at its current valuation of $1.5 billion, the stock may be too frothy for potential buyers.

In addition to its fitness drinks, Celsius has a line of performance energy drinks meant to accompany workouts, which is part of a fast-growing category of new drinks. Beverages can be trendy, and have led to big winners on the market. La Croix maker National Beverage broke out a few years ago, and SodaStream shares surged before getting acquired by Pepsi. In the alcohol industry, hard seltzer, led by White Claw, has become the latest trend.

Whether Celsius can sustain its momentum remains to be seen, but it's hard to ignore a consumer product growing at sales by nearly double year over year.

A cannabis growhouse

Image source: Getty Images.


Like Celsius, GrowGeneration has surged almost out of nowhere in recent weeks as the stock has more than doubled in the last month. GrowGeneration, an operator of hydroponic and organic gardening stores, is the largest seller of hydroponic growing equipment for commercial and at-home use and is seen as a play on the marijuana industry. 

The stock took off after its second quarter earnings report earlier this month. Revenue jumped 123% to $43.5 million as same-store sales surged 49%, and sales from its online business jumped 149% as lockdowns affected the first half of the quarter.  

For the full year, the company expects revenue to grow about 115% to $170 million-$175 million, and expects adjusted EBITDA of $17 million-$18 million. 

As a seller of hydroponic equipment, GrowGeneration is seen as a picks-and-shovels play on the marijuana boom, and the stock could soar if recreational pot is legalized in the U.S. Investors have been reexamining marijuana stocks with the presidential election approaching, and the sector could take off if Joe Biden gets elected as that could pave the way to legalization, or at least deregulation.

GrowGeneration should be a beneficiary from any policies moving to marijuana legalization, and its unique position makes it a much safer bet than any of the dozens of marijuana growers who are competing with each other.