3 Small-Cap Value Stocks Wall Street Loves Right Now

Qualities like high growth prospects, impressive yield possibilities, and long-term growth potential make small-cap stocks worth considering. Also, with the swiftly recovering U.S. economy, the opportunities for this segment of stocks are expanding rapidly.

Considering the bright outlook, it could be wise to invest in current Wall Street favorite small-cap value stocks Caleres, Inc. (CAL), Smith & Wesson Brands, Inc. (SWBI), and Ribbon Communications Inc. (RBBN) for potential returns.

As the U.S. economy continues to grow at a steady pace, it presents an appealing opportunity for investors to invest in small-cap stocks. In 2024, the performance of the U.S. economy has improved with each quarter. The US economy grew 1.6% in the first quarter of 2024 and jumped to an annualized rate of 3% in the second quarter of 2024.

Federal government spending, rising business investments, and growing consumer spending fueled the growth. Also, for the third quarter, GDP is expected to continue expanding at a similar pace throughout the remainder of this year.

With this economic trajectory, adding small-cap stocks to the portfolio could be ideal. Small-cap stock is a company that has a market capitalization below $2 billion. Owing to their small capitalization, they offer more growth opportunities compared to large-cap entities. In the last year, the Russell 2000 Index returned 22.98%, and S&P Global SmallCap gained 20.75%.

Also, historically, small-cap stocks have outperformed large-cap stocks with their potential, and they offer the possibility of significant returns as they expand and capture higher market share. Further, continuous innovations and investment in technology have created new opportunities for the companies.

Considering the economy’s bright prospects, investors could consider adding fundamentally sound small-cap value stocks CAL, SWBI, and RBBN to their portfolios.

Let’s discuss the fundamentals of these stocks in detail:

Caleres, Inc. (CAL)

CAL engages in the retail and wholesale of footwear business internationally. The company operates through Famous Footwear and Brand Portfolio segments. The company provides licensed, branded, and private-label athletic, casual, and dress footwear products.

In terms of forward Price/Sales, CAL is trading at 0.42x, 55.2% lower than the industry average of 0.94x. Likewise, the stock’s forward Price/Book multiple of 1.60 is 38.9% lower than the industry average of 2.63. Also, its forward EV/EBITDA of 7.36x is 27.7% lower than the industry average of 10.18x.

On August 29, CAL’s Board of Directors declared a regular quarterly cash dividend of $0.07 per share paid on September 27, 2024, to shareholders of record as of September 13, 2024. The company has paid a consecutive quarterly dividend for more than 100 years.

CAL pays an annual dividend of $0.28, which translates to a yield of 0.85% at the current share price. Its four-year average dividend yield is 1.20%.

On August 22, CAL’s lead brand, Allen Edmonds, launched The Reserve Collection. The exclusive capsule is the pinnacle expression of the art of American shoemaking and reflects Allen Edmond's commitment to quality and craftsmanship for over a century.

During the second quarter that ended August 3, 2024, CAL reported net sales of $683.32 million, and its gross profit was $310.88 million. Adjusted net earnings attributable to CAL came in at $29.96 million and $0.85 per share for the quarter, respectively.

As of August 3, 2024, the company’s total assets stood at $2.02 billion, compared to $1.90 billion as of July 29, 2023.

Street expects CAL’s revenue and EPS for the fiscal year (ending January 2026) to increase 3.3% and 12% year-over-year to $2.85 billion and $4.53, respectively. Furthermore, the company has topped the consensus EPS estimates in three of the four trailing quarters.

Over the past year, CAL’s stock has surged 15.7% to close the last trading session at $32.89.

CAL’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

CAL has a B grade for Value and Quality. It is ranked #19 out of 59 stocks in the A-rated Fashion & Luxury industry.

In addition to the POWR Ratings we’ve stated above, we also have CAL’s ratings for Growth, Momentum, Sentiment, and Stability. Get all CAL ratings here.

Smith & Wesson Brands, Inc. (SWBI)

SWBI designs manufactures and sells firearms globally. The company provides handguns, long guns, handcuffs, suppressors, and other firearm-related products under the Smith & Wesson, M&P, and Gemtech brands.

SWBI’s forward non-GAAP P/E is trading at 12.33x, 28.2% lower than the industry average of 17.17x. Also, the stock’s forward EV/Sales multiple of 1.16 is 10.9% lower than the 1.30 industry average. Similarly, its forward EV/EBITDA of 6.19x is 39.3% lower than the industry average of 10.18x.

For the first quarter that ended July 31, 2024, SWBI’s net sales amounted to $88.33 million. The company’s non-GAAP gross profit was $25.37 million. Also, its Non-GAAP Adjusted EBITDAS came in at $9.90 million for the quarter.

In addition, as of July 31, 2024, the company’s cash and cash equivalents and total assets were $35.51 million and $571.27 million, respectively.

Analysts expect SWBI’s revenue and EPS for the second quarter (ending October 2024) to grow 6.9% and 17.9% year-over-year to $133.52 million and $0.17, respectively. Further, the company topped the consensus revenue estimates in three of the trailing four quarters.

Shares of SWBI have plunged 2% over the past year to close the last trading session at $12.88.

SWBI’s sound fundamentals are reflected in its POWR Ratings. The stock has a B grade for Value and Momentum. Within the Athletics & Recreation industry, SWBI is ranked #6 of 34 stocks.

Click here to access additional ratings of SWBI for Growth, Quality, Sentiment, and Stability.

Ribbon Communications Inc. (RBBN)

RBBN provides communications technology internationally. It operates in two segments, Cloud and Edge; and IP Optical Networks. The company offers software and hardware products, solutions, and services for voice-over internet protocol communications, voice-over long-term evolution, voice-over 5G communications, and unified communications and collaboration.

In terms of forward EV/EBIT, RBBN is trading at 9.12x, 54.2% lower than the industry average of 19.90x. Further, the stock’s forward Price/Sales multiple of 0.65 is 77.4% lower than the industry average of 2.85. Also, its forward non-GAAP P/E of 12.96x is 45.6% lower than the industry average of 23.81x.

On July 22, RBBN and Leading fiber broadband and technology provider Converge ICT Solutions Inc. (CNVRG) collaborated to pioneer in the Philippines with a leading-edge Apollo optical networking system, which will optimize data transmission across the internet provider's backbone network.

RBBN reported revenue of $192.62 million during the second quarter, which ended June 30, 2024, and its gross profit grew 6.4% from the year-ago value to $97.87 million. The company’s non-GAAP adjusted EBITDA stood at $22 million.

In addition, the company’s non-GAAP net income and non-GAAP EPS amounted to $8.52 million and $0.05, up 10% and 25% from the prior year’s quarter, respectively.

Street expects RBBN’s revenue for the third quarter (ended September 2024) to increase 4.4% year-over-year to $212.14 million, while its EPS for the same quarter is expected to grow 16% year-over-year to $0.06. Also, for the fiscal year 2024, the company’s revenue and EPS are expected to grow 1.7% and 14.3% year-over-year to $840.72 million and $0.24.

Shares of RBBN have soared 21% over the past year to close the last trading session at $3.11.

RBBN’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.

The stock has a B grade for Value and Growth. RBBN is ranked #6 of 45 stocks in the Technology – Communication/Networking industry.

Click here to access additional ratings of RBBN for Momentum, Quality, Sentiment, and Stability.

What To Do Next?

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CAL shares were trading at $32.60 per share on Wednesday afternoon, down $0.29 (-0.88%). Year-to-date, CAL has gained 6.74%, versus a 20.81% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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