As usual, many of the biggest stock stories of the year so far have been about large-cap names. And as usual, that large-cap focus has steered investors away from some great opportunities offered by smaller companies.
To correct this news coverage imbalance, it might be a good time to take a closer look at Allied Motion Technologies (NASDAQ:AMOT), SciPlay (NASDAQ:SCPL), and R1 RCM (NASDAQ:RCM). They're not only noteworthy small-cap stocks, but they're particularly compelling picks right now before we get too deep into the new month. Let's take a closer look at these three top small-cap stocks.
1. Automate growth with Allied Motion Technologies
Just as the name suggests, Allied Motion Technologies makes and markets motion control solutions that automate factories and production plants.
There's never been a more apropos time to take on some exposure to the market. As the COVID-19 pandemic proved via shutdowns meant to quell it, the world remains heavily reliant on people doing jobs that robots could do without risking the further spread of a contagion. Mordor Intelligence anticipates a compounded annual revenue growth rate of more than 25% for the robotics market through 2025, once the adverse effect of the coronavirus pandemic is put in the rearview mirror.
Enter Allied Motion Technologies. It's not the biggest name in the robotic business, sporting a modest market cap of $400 million. Don't let its size fool you, though. The company can and does make motorized solutions for almost any industry, ranging from barcode scanners to materials transportation to commercial cleaning equipment.
The company's taken some COVID-related lumps, which is expected to shave 4% off this year's top line and drag last year's per-share profits from $1.80 to only $1.26 this year. Analysts believe Allied Motion Technologies is ready for the recovery from the pandemic, though, modeling revenue growth of nearly 10% next year, and earnings of $1.75 per share. That rebound doesn't appear to be fully priced into shares, which remain 10% below their February highs despite a solid rally from March's low. As 2021 nears and the dust clears, though, that leaves this stock with room and reason to continue rallying.
2. SciPlay underestimated
There's a chance you've utilized SciPlay's know-how and not even realized it. The company publishes digital games for mobile devices, and is best known for its casino games. SciPlay was already growing nicely through the end of 2019, logging a couple of years' worth of double-digit sales growth. Lockdowns have proven plenty beneficial for the company, however. Its second-quarter top line of $166 million was up 40% year over year, driving an 86% improvement in net income. Per-player metrics improved in a big way too. The average monthly revenue grew 25%, and its average revenue per daily active user grew 40% year over year.
In short, SciPlay's plans to reach, acquire, and serve more consumers during these unusual times are working.
Analysts expect this year's big growth to cool a bit next year, with sales as well as profit progress falling back to single-digit levels. That may be a key reason the stock's mid-year gains have cooled as well; September's stock price high near $17 a share is essentially in line with August's peak.
Those analysts, as well as investors, may be underestimating what lies ahead, however, setting the stage for pleasant surprises in the near and not-so-near future. Consumers have grown somewhat accustomed to finding alternative forms of entertainment, and the company's already tipped its hand in terms of its growth strategy, acquiring Come2Play last quarter, and hiring Danny Moy as Chief Strategy Officer last month. Moy's got 20 years of merger and acquisition experience, and he will "identify new business opportunities" as part of his new position. There's probably not been a better time to do deals than in the wake of the shakeup spurred by COVID-19.
3. R1 RCM is reliable
Finally, add R1 RCM to your list of small-cap stocks to buy in October.
It's not a household name. In fact, you've probably never even heard of it. The $2 billion organization provides patient billing and management software to hospitals and clinics, not only making management of such operations easier, but more effective. Estimates of how much money is lost due to the sheer complexity of the world's healthcare system are on the order of $200 billion to $300 billion per year, if not more. R1 RCM boasts per-patient revenue improvements of 5%, yet a 15% reduction in costs to the provider.
It's anything but a sexy, exciting, high-growth business, but that's the point. R1 RCM's revenue is closely linked to how well it helps healthcare companies manage the fiscal parts of their operations, and the business model lends itself to lots of repeat revenue. That's a big part of the reason R1's top line has improved an average of 10% a year since 2016.
The other driver is acquisitions within a fragmented market ripe for deals that lead to greater efficiency through scale. R1 RCM has acquired rivals RevWorks and SCI Solutions this year and added a bunch of new customers to boot. Perhaps best of all, the company is immune to economic cycles.