Small-Cap Earnings Season Is About to Start: Here's My Best Trading Advice
One stock I'm watching is very under the radar, but it could be discovered if it performs well.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Following a wild swing in the market on Wednesday after the Fed interest-rate decision, the computer algorithms are in control and creating some random action.
The indexes dropped at the opening bell but bounced back on solid breadth. The Magnificent Seven names are leading due mainly to high hopes of a strong report from Apple AAPL after the close.
After the Apple report on Thursday night, the market will be focused on the April jobs news that is due on Friday, but following that, the most interesting action will be small-cap earnings season.
Yesterday, I mentioned several names that have earnings coming up, but there are hundreds more that will receive very little media attention.
Small-cap earnings reports are quite different than those of big-cap names. These stocks tend to have very limited analyst coverage and are much more likely to produce big surprises. Many of those surprises will be negative, but typically, there will be a few new leaders that will gain recognition and emerge from the quagmire.
Unfortunately, small-cap names can be absolutely crushed if they disappoint. The odds of a miss are much higher than they are with bigger-cap stocks.
My best advice for trading small-cap earnings is not to make big bets on the report but to focus on trading the reaction. Even when I’m very optimistic about a stock, I want to have some buying power in reserve to take advantage of post-earnings volatility.
An Under-the-Radar Opportunity?
An example of a stock that I’m watching is Sensus Healthcare SRTS. This is a very small company with a strong balance sheet. It sells a state-of-the-art system for treating non-melanoma skin cancer. It will be reporting its first-quarter earnings on May 9.
In the fourth quarter it reported earnings of $0.26 per share versus an estimate of $0.14. The company gave no guidance for the first quarter, and it has a history of very bumpy performance. If Sensus keeps up the fourth-quarter momentum, the stock will move higher as it is extremely cheap.
This stock is very under the radar, but it could be discovered if it performs well. There is a lot of risk, but that is why there is also high potential reward.
There are many other little stocks out there with intriguing stores, and we will hear from them in the next two weeks. Let me know if you have any interesting ideas on your radar.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider SRTS to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
At the time of publication, Rev Shark was long SRTS.
