The Small-Cap Showdown: 3 Mighty Stocks Punching Above Their Weight

Stocks to buy

It’s time to look into small-cap stocks as the mega-cap tech titans have hogged the spotlight, especially in recent weeks, with Apple (NASDAQ:AAPL) joining the red-hot AI rally with its recent reveal of Apple Intelligence. This may be the generative AI tech of choice once it’s in the palms of iPhone users later this year. Indeed, Apple deserves an “A” grade for how it debuted its most ambitious AI offering to date. Apple’s entry into the AI race also seems to have given a lift to its mega-cap peers in the Magnificent Seven.

With so much concentration in the mega-caps, questions linger as to how things will ultimately settle. Markets could certainly become even more top-heavy as time goes on. But that doesn’t mean you should ignore the small- and mid-cap companies as they do their best to embrace new technologies and grow their way into investor’s radars.

In this piece, we’ll look at three small-cap stocks deserving of your attention.

Small-Cap Stocks: Build-A-Bear Workshop (BBW)

Source: Moab Republic / Shutterstock.com

If you’ve been to the mall with your kids, you’re probably well aware of Build-A-Bear Workshop (NYSE:BBW), a retail store that allows you to customize and stuff your very own plush animal. Building your own stuffed toy is a great experience worth paying a premium for, even if you’re an adult.

In recent years, BBW stock has been on a choppy ride higher. At the time of writing, the stock’s up over 333% in the past five years and around 22% in the past year. The market cap sits at a mere $376.1 million.

With the reintroduction of the incredibly cute Mini Beans collection and collaborations with big brand names, including Pokémon and Disney (NYSE:DIS), I find BBW stock has what it takes to rebound after a rough 19% spill off its recent highs.

With an ongoing legal battle with Squishmallow, a subsidiary of Jazwares, which itself is a subsidiary of Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), over allegations that Build-A-Bear “copied” its designs, things could certainly get messy from here. Either way, BBW stock looks super cheap at 7.5 times forward price-to-earnings (P/E). Definitely one of the small-cap stocks to buy, at least in my opinion.

Vita Coco (COCO)

Source: Nicole Glass Photography / Shutterstock.com

Coconut water maker Vita Coco (NASDAQ:COCO) has been on a hot run since bottoming out back in February 2024, now up more than 57% from those lows. The natural beverage maker has seen blistering growth in recent years. And though there have been dips along the way, COCO stock continues to look like a great small-cap growth stock as it expands its product further, perhaps in a way to disrupt the large-cap beverage firms in the process.

The firm boasts a $1.75 billion market cap, leaving Vita Coco a pretty long runway to take market share from a wide range of rivals. Despite dominating the coconut water market, with a 50% share in the U.S. market, Vita Coco still has the international market to tackle. Additionally, as consumers opt for healthier options in the drink fridge of their local grocery store, I view Vita Coco as having the edge over even the big-name soda makers.

At 33.89 times trailing P/E, I still view COCO stock as cheap relative to its growth potential. Perhaps new drink categories can help keep growth rates moving back into the high double-digits.

Bumble (BMBL)

Source: XanderSt / Shutterstock.com

Bumble (NASDAQ:BMBL) wants to harness the profound power of AI to help daters get better matches or, at the very least, save them a bit of time and heartache. Indeed, the market seems quite skeptical of Bumble’s AI ambitions.

On one hand, a Bumble-developed AI may help future daters find that perfect someone. However, companies like Meta Platforms (NASDAQ:META) could implement the same thing. Arguably, Meta’s Facebook looks like it could do a better job of matching since it already has a slew of user data and their relationship statuses.

Though Facebook Dating has been met with limited success, I do think it can improve matching through the power of AI. Given competitive threats in the AI-focused dating world, I just can’t recommend BMBL stock. Not while it’s in a historic funk, with shares down over 85% from peak levels. However, it will be interesting to see how the $1.9 billion company aims to take on some giants in the scene with AI at its side.

On the date of publication, Joey Frenette held Apple, Disney, and Berkshire Hathaway. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joey Frenette is a seasoned investment writer specializing in technology and consumer stocks. Contributing to the Motley Fool Canada, TipRanks, and Barchart, Joey excels in spotting mispriced stocks with long-term growth potential in a fast-paced market.

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