During times of economic recovery, small-cap stocks tend to outperform their large-cap counterparts. As the U.S. continues to recover from COVID-19 pandemic economic disruption at a faster-than-expected pace, small-cap companies are preparing to capitalize on the growth opportunities. Also, small- and medium-sized businesses (SMBs) have been receiving substantial government support in the form of tax deferrals and subsidies. The $1.9 trillion pandemic rescue package passed by the Biden administration is expected to boost consumer spending, which should contribute to improved sales by these companies.
Given this backdrop, the Vanguard Small-Cap ETF (VB) has gained 12.7% and the SPDR S&P 600 Small Cap ETF (SLY) has returned 19.7% so far this year. This compares to a 10.1% rise in the large-cap focused SPDR S&P 500 ETF Trust (SPY).
So, we believe that investors who want to invest in stocks with immense growth potential and can tolerate some market volatility should bet on Winnebago Industries, Inc. (WGO), La-Z-Boy Incorporated (LZB), and Hibbett Sports, Inc. (HIBB).
Winnebago Industries, Inc. (WGO)
A leading manufacturer of recreational vehicles (RV) and marine products, WGO makes delivers products that are used primarily in leisure travel and outdoor recreation activities. The company operates under the brand names Winnebago, Grand Design, Chris-Craft and Newmar brands, and builds quality motorhomes, travel trailers, fifth wheel products and boats. It has a market cap of $2.61 billion.
WGO’s net sales of $839.89 million for its fiscal year 2021 second quarter (ended February 27, 2021) represents a 34% year-over-year rise. Its gross profit has increased 96.3% year-over-year to $156.58 million. The company’s net income has increased 300% year-over-year to $69.07 million. Also, its adjusted EPS has increased by 216.4% year-over-year to $2.12.
The company’s revenue has grown at a CAGR of 14.5% over the past three years. Its EBITDA grew at a CAGR of 19.2% over the same period. This reflects the company’s steady growth over the past few years.
For the quarter ending May 31, 2021, analysts expect WGO’s EPS and revenue to increase 757.7% and 140% year-over-year, respectively. Also, it surpassed the consensus EPS estimates in each of the trailing four quarters.
The company approved a quarterly cash dividend of $0.12 per share payable on April 28. Last month, WGO partnered with National Park Foundation (NPF), the official non-profit partner of the National Park Service, to advance outdoor equity. The stock has gained 121.5% over the past year to close yesterday’s trading session at $77.71.
It’s no surprise that WGO has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Growth, and B grade for Momentum. Click here to see WGO’s ratings for Value, Stability, Quality, and Sentiment.
WGO is ranked #14 of 53 stocks in the B-rated Auto and Vehicles Manufacturers industry.
La-Z-Boy Incorporated (LZB)
With a market cap of 1.98 billion, LZB manufactures, markets, imports, exports, distributes and retails upholstery furniture products, accessories, and case goods furniture products. Its brands include La-Z-Boy, England, Hammary, American Drew, and Kincaid. The company sells its products through more than 120 company-owned and more than 900 independent locations under the La-Z-Boy Furniture Galleries and La-Z-Boy Comfort Studio names.
For its fiscal year 2021 third quarter, ended January 23, 2021, LZB’s net sales were $470.20 million compared to $459.12 million in the second quarter ended October 24, 2020. Its same-store sales for the entire La-Z-Boy Furniture Galleries network increased 6.3% year-over-year. The company’s non-GAAP operating margin for the quarter was 9.5% compared to 9.4% in the prior-year period, driven primarily by strong performance by Joybird. Also, LZB’s non-GAAP EPS was $0.74 in the third quarter compared to $0.72 in its fiscal year 2020 third quarter.
LZB’s EBIT has grown at a CAGR of 11.4% over the past three years. Its EBITDA also grew at a CAGR 9.5% over that period. This reflects the company’s stable growth over the past few years.
The company’s EPS and revenue are expected to increase 211.1% and 45.9% year-over-year, respectively, for the quarter ending July 31, 2021. Also, LZB surpassed consensus EPS estimates in all the trailing four quarters. The stock has rallied 103% over the past year and closed yesterday’s trading session at $42.84.
LZB’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Strong Buy in our POWR Ratings system. It has an A grade for Momentum and Quality, and a B grade for Growth. In addition to these ratings, one can see LZB’s rating for Stability, Sentiment, and Value here.
LZB is ranked #27 of 64 stocks in the A-rated Home Improvement & Goods industry.
Hibbett Sports, Inc. (HIBB)
Headquartered in Birmingham, Alabama, HIBB is a retailer of athletic-inspired fashion products. It has a market cap of $1.12 billion. The company has more than 1,060 stores under the Hibbett Sports and City Gear banners, located primarily in small to mid-sized communities. It also operates through its e-commerce websites under the hibbett.com and citygear.com names.
HIBB’s $376.83 million in net sales for its fiscal year 2021 fourth quarter, ended January 30, 2021, represents a 20.4% year-over year rise. Its gross profit has increased 41.5% year-over-year to $139.70 million. The company’s net income for the quarter came in at $23.93 million, up 298.8% year-over-year. Its non-GAAP EPS increased 174.5% year-over-year to $1.40.
Its revenue has grown at a CAGR of 13.6% over the past three years. The company’s EPS grew at a CAGR of 36.6% over the same period. This reflects the company’s robust growth over the past few years.
For the current quarter, ending April 30, 2021, analysts expect HIBB’s EPS to increase 693.5% year-over-year to $2.46. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 84.3% year-over-year to $389.65 million in the current quarter.
On March 5,HIBB launched its newest city gear location in Aiken, South Carolina. In February, it opened its stores in Colonial Heights near Southgate Square shopping center and in Vallejo, North California. The stock has gained 464% over the past year and closed yesterday’s trading session at $69.26.
HIBB’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Momentum and Quality, and a B grade for Growth. Click here to see the additional POWR Ratings for HIBB (Stability, Sentiment, and Value).
HIBB is ranked #15 of 33 stocks in the A-rated Athletics and Recreation industry.
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WGO shares were unchanged in after-hours trading Thursday. Year-to-date, WGO has gained 29.03%, versus a 11.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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