Stocks slipped in early trading this morning with all major U.S. indices in the red. First-quarter earnings season kicks off this week with major banks, Goldman Sachs (GS) and JPMorgan Chase (JPM) set to report results for the quarter ending March 31st.
Market analysts have cautioned that after reaching fresh records last week, a breather may be in order this week, which could make way for some prosperous opportunities.
Stocks with smaller market values are outperforming by a wide margin so far this year, and strategists and analysts alike say small caps should continue to lead the way as the economic recovery gains steam. Our trade alert for today highlights one small-cap with big potential.
The Lovesac Co. (LOVE) is a niche consumer discretionary company that designs “foam-filled furniture,” which mostly includes bean bag chairs.
Although it operates about 90 showrooms at malls around the country, revenue – thankfully – is largely driven by online sales. That’s led to a boom in business as folks, stuck at home, shop online for ways to spruce up their living spaces.
Shares have followed, rising about 45% for the year-to-date and more than 1,000% over the past 52 weeks. And analysts expect even more upside ahead, driven by a long-term growth rate forecast of 32.5% for the next three to five years, according to S&P Global Market Intelligence.
Stifel equity research, which specializes in small caps, says LOVE is among its small caps to Buy. They expect the consumer shift to buying furnishing online to persist, and even accelerate, once the pandemic subsides.
“Lovesac is well positioned for continued share gains in the furniture category with its strong product, omni-channel capabilities and enhancements to the platform, many of which were initiated during the pandemic,” writes Stifel’s Lamont Williams in a note to clients.
The analyst adds that LOVE has a long ramp-up opportunity thanks to a new generation of home buyers.
“As the housing market remains healthy there is the opportunity to capture new buyers as more middle- to upper-income millennials become homeowners and increase spending on [the company’s] category,” Williams writes.
Of the seven analysts covering the stock tracked by S&P Global Market Intelligence, six rate it at Strong Buy and one says Buy. That’s a small sample size, but the bull case for LOVE as one of the better small-cap growth stocks to buy still stands.
Keep in mind that small-caps come with heightened volatility and risk. It’s also important to note that it can be dangerous to chase performance. But small-cap growth stocks – particularly in this environment – can offer potentially much greater rewards. For investors who can hold strong, LOVE is likely a good bet.
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