Small-cap stocks haven’t recovered in the same way as mega-caps this year, but there are still plenty of success stories in the most volatile sector of the market.
By Hank TuckerForbes team
TThe story of America’s dominant coconut water brand began today at a Lower East Side bar in February 2003, where best friends Michael Kirban and Ira Loran struck up a conversation with two Brazilian women who told them the refreshment was what they wanted. what they missed most was their home.
That night was the start of a whirlwind romance for Loran, a Columbia graduate who sold everything he owned and moved to Brazil to marry one of them. When Kirban came to visit us later that year, he was surprised to see how ubiquitous coconut water was. Restaurant servers asked if they wanted flat, sparkling or “coconut”. Kirban, a software entrepreneur, was ready for a change and confident there would be a market for his product in the United States.
The two friends melt Vita Coco (COCO) in 2004 and faced stiff competition in its first decade as others had the same idea but attracted investments from celebrities like Madonna, Matthew McConaughey and Demi Moore. The New York-based company now has a supply chain that sources coconut water from 14 factories across six countries.
Vita Coco sells coconut water under its original brand as well as mango, peach and pineapple flavors.
Vita Coco
“You can’t just turn on the tap,” says Kirban, 48, now executive chairman of Vita Coco after handing the CEO reins to Boston Beer veteran Martin Roper last year. “We have thousands and thousands of farmers climbing trees every day to knock down coconuts.”
Vita Coco went public in 2021 and took off last year, tripling since last November. Sales over the past 12 months rose 14% to $479 million, and net profit quintupled to $37 million, with transportation costs down from last year. Kirban envisions coconut water one day becoming “as big as orange juice.”
These strong growth numbers have helped Vita Coco rank 17th on Forbes’ annual list of America’s Most Successful Small-Cap Companies, and its stock appreciation has been rare among small-caps over the past year. Last year. The Russell 2000 index is down 2.8% this year and remains 30% below its 2021 peak, as this year’s mega-cap rally leaves smaller companies behind.
Small caps typically underperform entering a recession or economic downturn, and this year’s high interest rates and slowing consumer spending are holding the group back, but investors like Laird Bieger, co-portfolio manager of the $1.3 billion Baron Discovery Fund, think they’ll go back. long-term. He points out that the Russell 2000 Growth Index is trading at a five-point discount to its historical P/E average compared to the S&P 500 Index.
“From a relative valuation perspective, it seems like small caps are as discounted as possible,” says Bieger. “I think we’re going to look at late 2023 and early 2024 and say that looks a lot like what we saw in 2003 after three long years. Coming out of a downturn is where small-cap growth really shines. In 2003, small-cap stocks as measured by the Russell 2000 index soared 45% after suffering a 22% loss in 2002.
To find the top 100 stocks bucking the trend, Forbes looked at 974 U.S.-listed companies with market capitalizations between $300 million and $2 billion and excluded all but 389 that had positive sales growth over the past 12 months and whose price of the stock was above $5. We ranked them based on stock performance, sales growth, return on equity and profit growth over the last 12 months and the last five years. Financial institutions, REITs, utilities, royalty trusts and limited partnerships were excluded.
The first company on the list is the glassmaker Tecnoglass (TGLS), which just moved its headquarters to Miami and manufactures its products in a 4.1 million square foot complex in Barranquilla, Colombia. Its glass windows and aluminum products are used in commercial and residential buildings across the Americas, and it has particularly benefited from Florida’s construction boom. Its year-over-year sales of $841 million have doubled in less than two years and the stock is up more than 1,000% from its March 2020 low point.
Tecnoglass is one of more than a dozen companies ranked in the construction sector on the list, including eight in the top 30. Others in that group are engineering consulting firms. Bowman Consulting Group (BWMN) at No. 3, pipeline builder Primoris Services Corp. and electrical construction companies IES Holdings (IESC) And MYR Group (MYRG). With the proliferation of data centers and increased spending thanks to last year’s Inflation Reduction Act and the Infrastructure Investment and Jobs Act of 2021, many of these entrepreneurs are experiencing a boom period.
“A lot of these companies are geared more toward non-residential infrastructure end markets, and those areas haven’t really been affected by a higher cost of capital environment with high interest rates as is the case in the housing sector,” says Brent Thielman. , engineering and construction analyst at DA Davidson. “These projects are very well funded because at the end of the day, they are necessary.”
The #2 company on the list, based in Stamford, Connecticut Dorian LPG (LPG), is a liquefied natural gas shipping company that operates a fleet of 25 large tankers transporting gas around the world. Chairman and CEO John Hadjipateras has worked in shipping for more than 50 years and comes from a Greek family of sailors and shipowners dating back four or five generations to the 19th century.
He was a director of a predecessor company, Seacor Holdings, until 2013, then took Dorian LPG public in 2014. With global oil exports increasing this year, its stock rose 87 % and its trailing 12 month sales increased 64% to $493 million.
“The shipping industry is quite volatile, with ups and downs. It’s a bit like real estate in Manhattan: when times are good, everyone builds too much. You come out of a feast and all of a sudden you’re over capacity and it’s the other way around,” says Hadjipateras. “We try to stay light with a strong balance sheet so we can get through the cycle.”
Very few of the 100 successful small-cap companies Forbes’ list are household names, but two retail and entertainment names showing strong growth are Dave & Buster (PLAY) at No. 42 and Build-A-Bear Workshop (BBW) at n°74.
Build-A-Bear, which sells customizable, DIY teddy bears and other stuffed animals in nearly 500 stores worldwide, was a victim of the decline of malls long before Covid almost sounded the death knell. death knell, when its stock fell to just $1 per share, bringing its market cap to less than $20 million. But it has made a remarkable comeback since April 2020, with the stock price now at $24.67 and 12-month revenue of $479 million eclipsing its pre-financial crisis peak. Its experiential retail offering has attracted people seeking normalcy post-Covid, and it has also significantly improved its online sales.
The company says 40% of its sales are now aimed at teens and adults, mostly in the form of licensed collectibles for brands like Pokemon and Hello Kitty, and last week it partnered with Cinemark to release for the first time an animated Christmas film titled Glisten and the joyful mission. She hopes moviegoers will boost sales of her new “Merry Mission” collection, centered around a stuffed elf named Marzipan and a snow deer named Glisten. Many stores offer free movie tickets to children who purchase a DIY stuffed animal.
“If the movie works and this company expands from just a place to make a four-legged friend to a full entertainment offering, that becomes a different story,” says Small Cap Consumer Research analyst Eric Beder, who is bullish on Build-A-Bear’s future prospects. “The Street doesn’t really project any of this into the numbers.”
MORE FROM FORBES