Wall Street offers plenty of small-cap investment ideas, but not all smaller firms are profit-making, and the chances of such investments paying off big or going to zero are about equal, notes market research site Simply Wall St. Georgiy Timoshin, a financial analyst at Freedom Finance Global, highlights two currently-unprofitable small-cap companies that may appeal to investors with a high tolerance for risk.
Enovix Corp.
With a market capitalization of $1.95 billion, Enovix Corp. describes itself as a maker of safe, high-capacity, high-energy batteries. Some are designed for wearables — like smartwatches and smart shoes — while others power mobile phones and portable networking devices, for example. There are also military and industrial applications. The growing demand for more powerful and compact wearable technology, driven by the boom in energy-hungry AI, makes the development of efficient power sources a key engineering challenge, Timoshin explains.
Enovix is already known in the industry, according to the Freedom Finance Global analyst. The company has unveiled agreements with consumer electronics battery manufacturer Elentec (one of whose clients is Samsung), an unnamed smartphone manufacturer, a Fortune 200 company needing batteries for Internet-of-Things products, and a global automotive equipment manufacturer. Timoshin also notes Enovix’s contracts with the U.S. military. In the second quarter of 2024, the company reported revenue of $3.8 million, over 40 times the amount in the previous-year period.
In the last 12 months, Enovix shares are up about 9%, with the year-to-date growth at over 11%. The FactSet 12-month consensus target price is $29.45 per share, implying upside of more than 150%.
Symbotic Inc.
Symbotic Inc., with a market capitalization of $2.99 billion, makes robotics technologies for supply chain automation in industries ranging from footwear and apparel to grocery retail. The company’s business, Timoshin explains, is creating AI-powered robotic systems and solutions for warehouses and distribution centers. Symbotic helps other companies solve a range of specific challenges, like labor costs and shortages at warehouses, as well as storage optimization.
In the fiscal-2024 third quarter (ended June 29), the company’s revenue grew nearly 58% year over year to $492 million. Symbotic has secured many orders from large companies, providing confidence in future cash flows, notes the Freedom Finance Global analyst.
Symbotic shares have fallen around 44% since the beginning of the year and are off about 27% over the last 12 months. The average target price for the stock is $39.40 per share, meaning 36% upside versus current levels.
Risks for investors
The innovative approach each company takes in niche areas makes their stocks attractive, argues Timoshin. He cautions, however, that they are better suited for investors with a high risk tolerance. Enovix and Symbotic are growing quickly, but remain unprofitable on the net income level, which makes them highly sensitive to changes in investor expectations. The FactSet consensus has Enovix revenue growing 78.8 times in four years and Symbotic’s projected revenue growth at 4.6 times. Both companies are forecast to post positive earnings per share by 2027 (Enovix) and 2025 (Symbotic).
