Back in April, I noticed two of my favorite small-cap stocks were taking what I believed to be a temporary beating.
Those stocks, MAKO Surgical and InvenSense, had both forced shareholders to suffer through multiple disappointing earnings reports, but I remained convinced their long-term stories remained intact.
Then in June, I decided to take another look at the smallest companies on my watchlist, and also ultimately ended up also suggesting investors look into the beaten-down shares of LeapFrog (LF.DL) and GT Advanced Technologies (NASDAQ: GTAT) as a result.
Of course, I made those calls with a long-term mind-set, but their performance so far has been nothing short of extraordinary:
| Company | Date Rec'd | % Return | S&P 500 Total % Return | % Difference |
|---|---|---|---|---|
| MAKO Surgical | 4/12/13 | 69.5% | 7.1% | 62.4% |
| InvenSense | 4/12/13 | 32.3% | 7.1% | 25.2% |
| LeapFrog | 6/27/13 | 9.9% | 5% | 4.9% |
| GT Advanced Technologies | 6/27/13 | 35.3% | 5% | 30.3% |
Source: YCharts.com. Data as of Aug. 12, 2013.
Curiously enough, LeapFrog's return actually includes an 11% fall after management last week issued disappointing third-quarter guidance as part of their otherwise strong third-quarter earnings report. However, as fellow Fool Jeremy Bowman pointed out, the toy maker has a history of under-promising and over-delivering with its quarterly earnings projections, so I still think there's a good chance LeapFrog will continue its upward run going forward.
Meanwhile, both robotic surgery specialist MAKO Surgical and motion-sensor maker InvenSense surged at least 14% in a single day two weeks ago after their own quarterly reports showed their long-term prospects have never been stronger, and GTAT jumped 13% last Tuesday after its own solid earnings report crushed analysts' expectations, fueling hope that its promises of a recovery in the solar market are slowly coming to fruition.
Let's continue this streak...
So let's go ahead and add to the list, shall we?
Here are two more beaten-down small-cap stocks I'm convinced represent fantastic buying opportunities at today's levels:
| Company | Market Cap | % Below 52-Week High | Recent Price | CAPS Rating (out of 5) |
|---|---|---|---|---|
| BJ's Restaurants (BJRI 0.75%) | $899 million | 30% | $31.89 | **** |
| iRobot (IRBT -0.14%) | $956 million | 19% | $33.37 | **** |
Source: Motley Fool CAPS.
Hungry for growth
First, shares of BJ's restaurants continued their several-quarters'-long losing streak earlier this month. Shares of BJ's fell as much as 13% after the company's net income fell 4% to $0.30 per share, even despite a sales increase of 10% to $198.5 million.
So what happened?
First, BJ's comparable sales came in flat as higher menu prices helped offset a 3% decrease in guest traffic, but that came as little solace to shareholders, considering fast-casual restaurant competitor Chipotle Mexican Grill managed a 5.5% increase in comparable store sales last quarter, driven by -- you guessed it -- an increase in foot traffic, all without raising menu prices.
In addition, BJ's management largely blamed higher marketing and occupancy costs for its decline in profitability, but it didn't help that the comparatively low-overhead Chipotle has also benefited from lower occupancy costs for the past two quarters, during which its has placed more emphasis on opening smaller restaurant formats with its new locations.
But don't think for a second BJ's is sitting on its heels waiting for this to blow over. To the contrary, management stated during their conference call that they're developing their own smaller-footprint design for new restaurants, which should not only help them take advantage of lower occupancy costs but could also even increase the overall number of BJ's Restaurant locations the company could build over time by broadening the scope of possible real estate they can consider.
And that's not to say this solidly profitable company's existing growth prospects aren't good enough as it stands. With just 134 locations in only 15 states at the end of last quarter, BJ's management still says they believe there's room for at least 425 restaurants across the country.
So while BJ's may be in for more pain over the short term, I still think the brewpub has what it takes to reward patient shareholders handsomely over the long run.
Automating your profits
Next, I've made no mystery of my fondness for robotics-specialist iRobot, and as a shareholder myself, I've already stated that a long-term decline in the company's crucial consumer segment would be one of only a few probable events that could convince me to sell.
The thing is, that didn't happen when the company reported earnings a few weeks ago. In fact, many were left puzzled when the stock fell 13% that day, even as iRobot's numbers beat expectations on both revenue and earnings per share.
As I wrote at the time, however, the market was hoping for an even bigger beat given iRobot's previous four-quarter streak of crushing estimates, and the company's guidance left investors wanting even more.
That's why I think the end result is a perfect buying opportunity in iRobot for long-term investors who've been waiting for their chance to get in.
