2 best small cap stocks to buy in April
If the last few weeks of jostling stocks haven’t scared you off, there’s a good chance you’re diving into April with an appetite for opportunistic buying. There are many small cap stocks that deserve your attention this month.
Fitbit (NYSE: FIT) and SmileDirectClub (NASDAQ: SDC) are among those stocks with a current market capitalization of less than $ 2 billion that have the potential to increase. They might not be popular names for investors now, but Fitbit’s unique win-win situation and SmileDirectClub’s status as a turnaround candidate make them stocks to watch in April.
Distinguish a stock that is supposed to be acquired later this year may sound odd on a hot stock list, but let’s call Fitbit – still waiting for Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) to close its $ 2.1 billion wearable pioneer deal – a volatility hedge. As bad as 2020 has been, Fitbit is one of the few stocks that has risen slightly as it gnaws at the large discount on its take-out price. If April is tough, Fitbit should continue to beat the market.
Fitbit is trading a little less than the $ 7.35 per cash share that Alphabet’s Google is expected to pay this year for the fitness monitor. But some fear regulators will end the deal. In particular, Fitbit collects data on health and fitness, and Alphabet is a tech giant that may misuse this information.
This deal can go either way, but let’s see why I think Fitbit investors will win either way. The government has bigger fish to fry at this point, and Google is already positioning itself as an ally in the country’s recovery efforts, including announcing $ 800 million in aid for small businesses. If the deal goes through this year, Fitbit investors will see their shares appreciate nearly 15% to hit the buyback price, and that’s a good result in any market.
Now let’s talk about the real possibility of this deal breaking down. What is Fitbit worth in this scenario? Fitbit’s market cap of $ 1.7 billion is backed by a cash-rich balance sheet. Its enterprise value is currently less than $ 1.3 billion, and if Alphabet fails to close its deal for Fitbit, it will cash a check for $ 250 million. The unusually high termination fees were negotiated because both sides knew the deal was going to be a challenge, so we’re talking about an enterprise value for Fitbit closer to $ 1 billion if the deal fails.
Fitbit isn’t perfect, but its user base continues to grow. He sold 8% more devices in his last trimester than a year earlier, and there are now nearly 30 million active users on Fitbit’s digital health platform. Revenue has declined as the product line has shifted to cheaper offerings – and cash consumption is a concern – but Fitbit alone appears to be worth over $ 1 billion in enterprise value. The stock may be hit first if the deal is canceled, but investors will eventually appreciate Fitbit’s access to a large audience on its digital platform and a small health solutions company growing at a two-digit percentage rate.
One of the most disappointing IPOs of the past year is a company that sells transparent dental aligners at a great price compared to orthodontic appliances or comparable aligners available from dentists and orthodontists. The direct seller of corrective dentistry products had no problem increasing demand before the COVID-19 crisis. Revenue grew 53% in his last trimester, but reports of negative customer reviews, a lack of profitability given high marketing costs and the closure of its SmileShops until at least May 3 for reasons of coronavirus containment have crushed the stock. SmileDirectClub enters the weekend 83% below the $ 23 IPO it completed seven months ago.
It was not an easy journey for SmileDirectClub. Weeks after the start of 2020, it was one of the hottest stocks this year after the company announced a distribution agreement with the largest retailer in the country and the end of an exclusive supplier contract which would expand its ability to market directly to the dental industry. Times have changed, and even moving some of its 3D printing features to make protective visors for healthcare professionals is more a wellness story than a practical solution to what is currently suffering from SmileDirectClub.
SmileDirectClub is still making the cut as a rebound candidate for April. Straightening your teeth is probably the last thing you think about right now, but when the crisis is over, you will probably be even more concerned with finding the cheapest way to achieve it. SmileDirectClub, with its teledentistry angle and direct consumption model, will thrive in this environment. SmileDirectClub is a warning about the risks of invest in IPOs, but every dog has a day when business makes sense.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.