Small- and mid-cap (SMID) stocks are an oft-overlooked category, but they offer investors a fertile field of opportunity. Specifically, these shares have underperformed the broader market in recent months, although many of the companies remain fundamentally sound.
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Oppenheimer’s head of technical analysis, Ari Wald, has been taking a closer look at the SMID caps, noting: “The Russell has completed a three-month base and emerged back above its 200-day average. We believe this supports our view that internal breadth is positioned to broaden—a bullish divergence based off the index’s relative ratio adds to our conviction.”
Looking forward, Wald goes on to point out these SMID-cap stocks a ripe pickings for investors: “We want to emphasize that growth should remain a core position while cyclicals are positioned for bullish catch-up. We’d similarly argue that small- and mid-cap growth offers an attractive balance to both themes.”
Bearing this in mind, we took a closer look at two SMID-cap stocks backed by the analysts at Oppenheimer. Running the tickers through TipRanks’ database, we learned that Oppenheimer sees over 100% upside potential in store for each, and both have earned a “Strong Buy” consensus rating from the rest of the Street.
The Lovesac Company (LOVE)
We’ll start with Lovesac, a furniture company that traces its roots to 1995 and offers lines of customizable sac-based seating; modular couches, chairs, and recliners; integrated sound systems; and accessories such as foot blankets, throw pillows, stools, and lap tables. The company’s products are adaptable to most any available space, making them ideal for DIY home designers; the ‘Sactional’ line of modular couches is particularly good in that niche. Today, Lovesac has a network of showrooms across the US, and annual sales of more than $650 million.
Lovesac, which has a market cap of just $366 million, has had a volatile year in regard to stock performance, with the shares showing a series of ups and downs in the last 12 months. Overall, LOVE is down some 19% since last June. That share price decline comes even as the company has seen a steady pattern of year-over-year quarterly revenue growth.
In its most recently reported quarter, Q1 of fiscal year 2024, Lovesac reported two solid headline numbers: 9.1% y/y net sales growth, and 15.1% y/y comparable sales growth. These figures supported the total quarterly revenue of $141.2 million, which was $7.46 million better than had been expected. At the bottom line, Lovesac frequently runs a net quarterly loss; the recent fiscal Q1 loss came to 28 cents per share in GAAP measures, or 13 cents per share ahead of the forecast. The company generated $6.3 million in net cash from operations, a turnaround of 128% from the $21.8 million net cash burn in the prior-year quarter.
Looking at Lovesac for Oppenheimer, 5-star analyst Brian Nagel sees plenty of long-term potential, writing: “We look upon recent, solid, but not great trends at LOVE as suggestive of a still up-and-coming, omnichannel-enabled brand managing well a more challenged macro backdrop and opting to continue to strategically invest, to support intermediate to longer-term efforts, despite a more muted topline backdrop, nearer term. We continue to view LOVE as one of the most compelling, smaller cap market share grabbing stories across home furnishings and consumer, broadly. In our view, shares underappreciate meaningfully, intermediate- to longer-term sales and profit opportunities for LOVE.”
Quantifying his stance, Nagel rates Lovesac shares as Outperform (i.e. Buy) with a $60 target price that suggests a robust one-year gain of ~150%. (To watch Nagel’s track record, click here)
Overall, all 4 of the recent analyst reviews on this stock are positive, giving LOVE a unanimous Strong Buy consensus rating. The shares are trading for $24.06 and the $53.33 average price target implies ~122% upside potential on the one-year horizon. (See Lovesac stock forecast)
Dyne Therapeutics (DYN)
Next up is small-cap biotech firm Dyne Therapeutics. This early clinical-stage biopharma company is working on new treatments for genetically driven muscle diseases, treatments designed to halt disease progression and potentially reverse damage already accrued. The company’s work is currently focused on three conditions, all various forms of muscular dystrophy, including myotonic dystrophy type 1 (DM1), Duchenne muscular dystrophy (DMD) and facioscapulohumeral muscular dystrophy (FSHD).
Dyne is developing a set of modern therapeutics, based on targeted oligonucleotides, through a proprietary platform, FORCE. The therapeutics are antibody based, designed to precisely deliver the active agent directly to the genetic basis of the disease. Dyne currently has two clinical trials underway, along with multiple preclinical research tracks.
On the first clinical trial, Dyne is continuing enrollment in ACHIEVE, a Phase 1/2 global trial of DYNE-101, a proposed treatment for adults suffering from DM1. The ACHIEVE trial will have three stages, a 24-week multiple ascending dose (MAD) randomized, placebo-controlled period, a 24-week open-label extension and a 96-week long-term extension. The company is on track to release initial data in 2H23.
Also on track for an initial data release in 2H23 is the DELIVER trial. This is another Phase 1/2 global trial, testing DYNE-251 as a treatment for DMD. The DELIVER trial is planned to follow the same 3-stage structure as ACHIEVE.
Both of these drug candidates have received Orphan Drug Designation. DYNE-251 received the designation in March of this year, and DYNE-101 in May. The designation will have tax benefits for Dyne Therapeutics.
Analyst Francois Brisebois covers this stock for Oppenheimer, and sees plenty of upcoming catalysts that should encourage investors.
“We recently spent time at DYN’s headquarters with a key opinion leader and come away incrementally more positive. Management’s clear and consistent messaging was comforting, given historical difficulties in the space. In addition to the KOL’s acknowledgment of the importance of a targeted approach that crosses the BBB, DYN reiterated clear expectations of success for the upcoming, potentially registrational P1/2 early cohorts’ readouts in DM1 and DMD. Finally, we believe recent ASGCT pre-clinical data showing FORCE’s ability to deliver to the CNS is a testament to the platform’s potential. As DYN remains our top pick, the event only strengthens our conviction.”
To this end, Brisebois rates DYN an Outperform (i.e. Buy), and his price target, at $34, suggests just how much he expects that outperformance: up to 181% in the coming year. (To watch Brisebois’ track record, click here)
Like Brisebois, other analysts also take a bullish approach. DYN’s Strong Buy consensus rating breaks down into 6 Buys and zero Holds or Sells. Given the $27.83 average price target, the upside potential lands at 130%. (See DYN stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
