Small-cap stocks are shares of companies with market caps between $300 million and $2 billion. These companies tend to have more room for growth as they scale up their business models, making them good bets for investors looking to beat the market over the long term. However, it's important to invest in quality companies with strategies that can stand the test of time. Let's dig into Celsius Holdings (CELH -0.12%) and Upwork (UPWK 0.76%) to find out why these stocks fit that bill, and why they could make great additions to your portfolio. 

Cash in a jar.

Image Source: Getty Images.

1. Celsius Holdings: massive international expansion 

Celsius Holdings is a beverage company known for its flagship Celsius brand of fitness drinks. With a current market cap of $1.35 billion, the stock fits comfortably into the small-cap category, but it looks poised for expansion as it widens its distribution network in the U.S. and Europe. 

Celsius's second-quarter revenue soared 86% from $16.1 million to $30.0 million as the expansion strategy takes shape. In the North American market, which represents 69% of net sales, Celsius aims to drive continued growth by stocking its products at a wider range of retailers. The company now boasts over 75,000 locations nationally and plans to roll out at Speedway gas stations, starting with 2,700 locations in the fourth quarter of 2020.

The company's European segment increased its sales by 595% to $8.77 million following the acquisition of Func Foods in the fourth quarter of fiscal 2019. The acquisition looks shrewd, because the combined business can take advantage of Func's European distribution channels and its Fast Sports Nutrition line, which provides another opportunity for growth. Management hasn't provided any color on how fast it expect European operations to grow going forward, but this improved distribution platform could be a big catalyst for expansion. 

Celsius reported net income of $1.56 million in the second quarter compared to a loss of $1.47 million in the prior-year period. Management has kept operating expenses in check in the face of soaring revenue, and the company looks set for bottom-line growth going forward. 

2. Upwork: a highly scalable business model

Upwork is a global freelancing platform that helps connect companies with qualified talent. While Upwork has long struggled with weak margins and net losses, it can benefit from its rapidly expanding addressable market and scalable business model. 

According to data from fintech giant Mastercard, the gig economy (which includes everything from ride-sharing apps to remote work platforms like Upwork), is projected to expand at a CAGR of 17% through 2023 because of evolving social attitudes, rising costs of living, and growing internet penetration around the world. Upwork is positioned to capture much of this growth because of its large platform and early mover advantage. 

Upwork's total revenue grew 18.6% to $87.5 million in the second quarter, based on strong performance in its marketplace and managed services platforms. The company powered growth in the period by attracting more clients in profitable freelance categories like technical work (such as information technology and software development) and customer support.

Looking forward, management is investing in its "Bring Your Own Talent" offering, which is designed to help clients pay and manage remote teams through the Upwork platform. It is also expanding its employer-of-record service to help clients convert freelancers to real employees without leaving the platform. These features could position Upwork for more expansion into human resources and payroll management, which could work well with its core freelancer business.

Upwork generated a GAAP net loss of $11 million in the second quarter, compared to a$2.5 million loss in the prior-year period. Such losses are normal for a growth company that hasn't reached full scale yet, but management will have to maintain Upwork's rapid revenue growth (while keeping costs in check) to unlock maximum value for investors. 

What is your risk tolerance?

Celsius Holdings and Upwork are two compelling small-cap stocks that could make good additions to your portfolio. But Celsius Holdings is a better bet for those who want to invest in a proven, profitable business model in the relatively mature beverage industry, while Upwork is better suited for the more risk-tolerant among us who want to get in on the ground floor of the gig economy -- an exciting investment frontier.