From their March 2020 lows through today, small-cap stocks have lived up to their reputation as hard-charging growth stocks, handily outperforming their larger brethren.
Where the 500 biggest companies in the stock market have returned some 85% over the last year and a half, the small cap Russell 2000 Index has generated gains in excess of 125%, a record of near 50% outperformance.
Yet the summer doldrums are setting in and small caps are down 3% since July began while the S&P 500 is 3% higher. Because these aren't the ripsnorting returns investors were accustomed to, there may be some small-cap companies offering greater bargains than their bigger siblings, like the three companies below.
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Ammo, Inc.
Ammunition maker Ammo, Inc. (POWW +1.86%) is in the midst of one of the industry's biggest demand growth cycles. Its next quarterly earnings report is due out next week, and could very likely shoot out the lights, but investors should see there is a much bigger opportunity for expansion beyond just a single quarter's returns.
The ammo industry is confronting a nationwide shortage that has existed for over a year and now even impacts police departments, which are unable to procure enough ammunition. There's been a run on ammo because of a massive gun-buying spree that's not letting up.
An estimated 8.4 million people bought their first gun last year, or 40% of all guns sold in 2020, which pushed demand for ammunition to new heights. According to the General Social Survey conducted by the nonpartisan and objective research organization NORC at the University of Chicago, 39% of U.S. households now own a firearm, up from 32% in 2016.
That puts AMMO in a perfect position to capitalize on the need, and last month it updated its earnings forecast to say it expected sales of $51 million in the second quarter, a 400% increase from the year-ago period. It's always possible it will blow past this guidance, but investors should focus instead on Ammo's long-term growth potential.
With shares down 30% from the high they hit at the end of June, this stock could shoot higher very quickly.
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The Original Bark Company
There's no end in sight to the trend of people humanizing their pets (I'm guilty as charged, too). The American Pet Products Association estimates consumers will spend almost $110 billion on pets this year, up 5.6% from 2020. Most (40%) will be spent on food and treats.
That's where The Original Bark Company (BARK 2.17%) comes in, which is probably better known as BarkBox, the monthly subscription service that mails out a themed box of toys, treats, and goodies for dogs. It has 1.8 million active subscribers, almost double the number it had a year ago, while its monthly churn rate, or the number of customers who drop the service, continues to decline. In fact, almost 95% continue to renew.
Bark is expanding its product line, too, which could boost its relevance to pet owners. It is introducing Bark Home, for things like leashes and beds; Bark Bright, which focuses on pet dental and wellness; and Bark Eats, to develop personalized food menus.
Right now, Bark focuses on one thing (dogs) and does it quite well, but it's also clear there's an opportunity expand into other verticals like catering to cats. The APPA says 69 million households have a dog, by far the largest pet group, but over 45 million households have a cat (and some have both). It's a huge market and as Bark grows it may find feline pets is simply a market too massive to ignore.
Image source: Getty Images.
Jushi Holdings
Multi-state marijuana retailer Jushi Holdings (JUSHF +1.22%) just appointed an executive with decades of extensive retail experience with companies including Urban Outfitters' Anthropologie chain and Gap to oversee its store expansion plans.
Because the U.S. is the world's leading marijuana market, and has yet to even scratch the surface of its full potential -- only 18 states have approved personal use or retail sale of cannabis, while 36 have legalized medical marijuana -- Jushi has the chance to become a dominant player in the dispensary space as it expands its operations.
Right now most of Jushi's stores are centered in Pennsylvania (13 of its 20 retail spots are located there), but others can be found in Illinois, and Virginia, and the trio account for 80% of its total 2021 revenue. It added California and Nevada to its roster through acquisitions earlier this year, and has a growing portfolio of branded retail outlets.
Jushi is a vertically integrated operator, with five cultivation facilities and another five extraction and processing plants, that employs nearly 1,000 workers across the country.
Revenue this year is forecast to hit $205 million to $255 million, which should allow it to readily finance its growth ambitions. As of March, Jushi had $168 million in the bank and only $82 million in debt.
This MSO is a small but growing force in the industry, so investors should expect to see it ride the wave of the potential upcoming marijuana legalization to new heights.
