Small-cap companies offer a number of advantages over their larger-cap counterparts. For one, academic studies suggest that small-caps have a history of outperforming bigger businesses (due to their higher levels of risk); and they also offer opportunities for individuals to profit where institutions can't (several institutional investors are prohibited from investing in small-caps).

Among the best of these benefits is their unique ability to fly under the radar. Big business brings with it hypervisibility in the world of finance. Well-known large-caps are always on analysts' radar, meaning that information is priced in to them almost immediately. But on the other hand, a smaller, under-the-radar company that's stayed out of the headlines can take flight fast once the good news hits ...

When investors focus on big names only, they may miss out on the opportunities in stealth small-cap stocks. But how do you find tomorrow's winners? It's a risky game, but one way to do so is to find small-cap stocks already outperforming analyst expectations.

In their reports, analysts often try to predict a company's future earnings per share. The average earnings values estimated by all analysts are what's known as consensus estimates.

Often, these numbers are relatively on-target. But sometimes you'll see a few "earnings surprises" emerge, the companies whose earnings deviate the most from initial estimates. Stocks that repeatedly outperform predictions may have potential gains that analysts simply aren't seeing. (Click here to access free, interactive tools to analyze all the investing ideas mentioned below.)

Here is a list of small-cap stocks that have outperformed analyst expectations over the past year (access complete earnings surprise calculations here). Do you think these companies will continue to outperform expectations?

Earnings data sourced from AOL Money. The list has been sorted by average surprise relative to analyst earnings estimates over the last year.





Market Cap (in Millions)


Avg. Surprise Relative To Analyst Estimates

On Assignment (Nasdaq: ASGN)


Staffing & Outsourcing Services





Pacer International (Nasdaq: PACR)


Air Delivery & Freight Services





8x8 (Nasdaq: EGHT)


Communication Equipment





Nanometrics (Nasdaq: NANO)


Scientific & Technical Instruments





Lionbridge Technologies (Nasdaq: LIOX)


Internet Software & Services





Phoenix Technologies (Nasdaq: PTEC)


Application Software





Xinyuan Real Estate Co. (Nasdaq: XIN)


Residential Construction





Smith & Wesson Holding (Nasdaq: SWHC)


Aerospace/Defense Products & Services





TeleCommunication Systems (Nasdaq: TSYS)


Communication Equipment





Interactive Chart: Press Play to compare annual returns of all stocks mentioned above.

Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.