Markets
29 Things to Look For in a Microcap Stock
29 Things to Look For in a Microcap Stock
Today’s infographic corresponds with the Howard Group’s Opportunity Knocks Challenge, which we are proud to sponsor. In this free challenge, investors can pick a portfolio of stocks from the public companies they represent – with play money of course. The investor with the best performing portfolio wins the trip of a lifetime valued between $11,000 and $15,000.
There are some incredible trips available:
- Head to Pamplona to literally run with the bulls
- Race Ferraris and Lambos in Vegas
- Visit exotic Vietnam and Cambodia for a river cruise
- Take a bite of a the Big Apple with a big shopping spree
- Hit the famous Wailea Golf Club in Maui for a few rounds
Definitely consider registering for this free contest today. We want to see a Visual Capitalist reader as the winner!
The Microcap Opportunity
We worked with Howard Group to come up with 29 points to consider when looking at investing in a microcap stock. The key here is due diligence. Good research can help you mitigate the risks that these stocks have.
Benefits of microcaps:
- Higher potential returns
- Small companies outperform big companies over time
- Valuation disconnect
- Lack of visibility = higher arbitrage
- Nimble companies and boards
- M&A potential
Downsides of microcaps:
- Higher risk
- Less analyst coverage = less due diligence by market
- Less trading volume
Investors who do strong due diligence can mitigate the downsides to trading microcaps and can reap big gains.
Due Diligence Checklist
The People
Good people behind a company make a difference – especially for small companies that have big growth potential.
Here are the key things to look for:
- A proven track record in building successful businesses
- A well-established network of connections and ability to nurture strategic relations
- Ability to raise capital in a tough economic environment
- Skin in the game: ownership of shares of the company represents real stake
- Management that is respectful of shareholder funds: not spending excessive money on General and Administrative (G&A) expenses or overpaying themselves
Pro tip: Review annual Information Circular for excessive levels of management compensation or director’s fees, insider shareholdings, any past bankruptcies, and other Boards that senior officers serve on or previously sat as a director.
Capital Structure
The structure of microcaps can tell a story on its own. Here is what to look for:
- The percentage of holdings of retail vs institutional investors, as well as insiders
- How many shares are outstanding and fully diluted
- The expiry dates and strike prices of warrants
Pro Tip: Look at previous financings. Was each subsequent financing done at a higher level than the last? Or does the company have a history of dilution?
The Numbers
The numbers are the meat and potatoes of this checklist. Look at:
- Working capital
- Quarterly expenses with special attention to G&A
- Debt – repayment schedule and interest rates
- Generating free cash flow, or the potential to do so in the near future
- Ability to maintain profitable margins
Pro Tip: Are revenues based on the one-time sale of a product or is there a strong recurring revenue model?
Differentiators and Catalysts
Does the company have an advantage over competitors? What catalysts are on the horizon that could potential impact share price?
- What sets the company apart from its peers?
- Product features, attributes and benefits
- Service features, attributes and benefits
- The company’s client list
- Visibility on events or milestones that will bring significant shareholder value
Pro Tip: Look at management’s past performance to see if they have done what they said they’d do. Have they met the timelines and objectives previously stated?
Valuation:
Relative to the market, is this company fairly valued? Check out:
- For a revenue producing company: how much future potential is built into the stock price versus the fundamental financial situation.
- For a non-revenue producing company: how much potential is built into the ultimate value of the asset and its economic viability
Tricks of the Trade:
Don’t bite off more than you can chew. Could you sell your holdings within three trading days without incurring a loss greater than 10%?
Keep an eye on the insiders. Insiders know the internal workings of the company and buying or selling could be a signal.
Watch the stock like a hawk. A sudden price drop could indicate a pending financing or negative news.
Analyze the analysts. Watch what the analysts are saying and if their opinions are shifting.
Economy
Economic Growth Forecasts for G7 and BRICS Countries in 2024
The IMF has released its economic growth forecasts for 2024. How do the G7 and BRICS countries compare?
G7 & BRICS Real GDP Growth Forecasts for 2024
The International Monetary Fund’s (IMF) has released its real gross domestic product (GDP) growth forecasts for 2024, and while global growth is projected to stay steady at 3.2%, various major nations are seeing declining forecasts.
This chart visualizes the 2024 real GDP growth forecasts using data from the IMF’s 2024 World Economic Outlook for G7 and BRICS member nations along with Saudi Arabia, which is still considering an invitation to join the bloc.
Get the Key Insights of the IMF’s World Economic Outlook
Want a visual breakdown of the insights from the IMF’s 2024 World Economic Outlook report?
This visual is part of a special dispatch of the key takeaways exclusively for VC+ members.
Get the full dispatch of charts by signing up to VC+.
Mixed Economic Growth Prospects for Major Nations in 2024
Economic growth projections by the IMF for major nations are mixed, with the majority of G7 and BRICS countries forecasted to have slower growth in 2024 compared to 2023.
Only three BRICS-invited or member countries, Saudi Arabia, the UAE, and South Africa, have higher projected real GDP growth rates in 2024 than last year.
Group | Country | Real GDP Growth (2023) | Real GDP Growth (2024P) |
---|---|---|---|
G7 | 🇺🇸 U.S. | 2.5% | 2.7% |
G7 | 🇨🇦 Canada | 1.1% | 1.2% |
G7 | 🇯🇵 Japan | 1.9% | 0.9% |
G7 | 🇫🇷 France | 0.9% | 0.7% |
G7 | 🇮🇹 Italy | 0.9% | 0.7% |
G7 | 🇬🇧 UK | 0.1% | 0.5% |
G7 | 🇩🇪 Germany | -0.3% | 0.2% |
BRICS | 🇮🇳 India | 7.8% | 6.8% |
BRICS | 🇨🇳 China | 5.2% | 4.6% |
BRICS | 🇦🇪 UAE | 3.4% | 3.5% |
BRICS | 🇮🇷 Iran | 4.7% | 3.3% |
BRICS | 🇷🇺 Russia | 3.6% | 3.2% |
BRICS | 🇪🇬 Egypt | 3.8% | 3.0% |
BRICS-invited | 🇸🇦 Saudi Arabia | -0.8% | 2.6% |
BRICS | 🇧🇷 Brazil | 2.9% | 2.2% |
BRICS | 🇿🇦 South Africa | 0.6% | 0.9% |
BRICS | 🇪🇹 Ethiopia | 7.2% | 6.2% |
🌍 World | 3.2% | 3.2% |
China and India are forecasted to maintain relatively high growth rates in 2024 at 4.6% and 6.8% respectively, but compared to the previous year, China is growing 0.6 percentage points slower while India is an entire percentage point slower.
On the other hand, four G7 nations are set to grow faster than last year, which includes Germany making its comeback from its negative real GDP growth of -0.3% in 2023.
Faster Growth for BRICS than G7 Nations
Despite mostly lower growth forecasts in 2024 compared to 2023, BRICS nations still have a significantly higher average growth forecast at 3.6% compared to the G7 average of 1%.
While the G7 countries’ combined GDP is around $15 trillion greater than the BRICS nations, with continued higher growth rates and the potential to add more members, BRICS looks likely to overtake the G7 in economic size within two decades.
BRICS Expansion Stutters Before October 2024 Summit
BRICS’ recent expansion has stuttered slightly, as Argentina’s newly-elected president Javier Milei declined its invitation and Saudi Arabia clarified that the country is still considering its invitation and has not joined BRICS yet.
Even with these initial growing pains, South Africa’s Foreign Minister Naledi Pandor told reporters in February that 34 different countries have submitted applications to join the growing BRICS bloc.
Any changes to the group are likely to be announced leading up to or at the 2024 BRICS summit which takes place October 22-24 in Kazan, Russia.
Get the Full Analysis of the IMF’s Outlook on VC+
This visual is part of an exclusive special dispatch for VC+ members which breaks down the key takeaways from the IMF’s 2024 World Economic Outlook.
For the full set of charts and analysis, sign up for VC+.
-
Markets1 week ago
U.S. Debt Interest Payments Reach $1 Trillion
-
Markets2 weeks ago
Ranked: The Most Valuable Housing Markets in America
-
Money2 weeks ago
Which States Have the Highest Minimum Wage in America?
-
AI2 weeks ago
Ranked: Semiconductor Companies by Industry Revenue Share
-
Markets2 weeks ago
Ranked: The World’s Top Flight Routes, by Revenue
-
Countries2 weeks ago
Population Projections: The World’s 6 Largest Countries in 2075
-
Markets2 weeks ago
The Top 10 States by Real GDP Growth in 2023
-
Money2 weeks ago
The Smallest Gender Wage Gaps in OECD Countries