Do these 2 NZX small caps have potential to outperform large-cap stocks?

Highlights 

• Small caps have high growth potential and can help investors in improving income management.
• Rakon increased its earnings guidance for FY22 on Friday.
• Vista Group announced changes in its management in October.

Companies that have small market capitalisation possess a higher potential to grow compared to large-cap firms.

Investing in small caps can help in a better management of income and deliver substantial returns in the present environment of low interest rates. However, they also carry high risks compared to large caps and mid caps. Hence, investors must invest in these stocks carefully.

On this note, let’s look at 2 small-cap stocks that have been doing well this year.

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Rakon Limited (NZX:RAK)

Advanced frequency control and timing solutions provider, Rakon, announced a further upgrade in its earnings guidance on Friday, from $39 million-$44 million to $44 million-$49 million in FY22.

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Managing Director Brent Robinson stated that the increase in guidance came at the back of a good performance expected in the next 2 months, a strong order book for the remaining FY22, and the contraction of the supply chain risk window that affects the accessibility of materials and parts.

Rakon is likely to perform well in FY22 provided the Company handles supply chain risks and sustain capacity and prevent COVID-19-related interruptions at its manufacturing sites.

On 12 November, RAK ended the trading session at $1.6, up 8.11%, from its previous close.

Vista Group International Limited (NZX:VGL, ASX:VGL) 

Cinema management systems provider Vista Group announced changes in its management team in October. The CEO and Co-founder of Movio, Will Palmer, declared his intention to step down from his position with effect from the end of this year.

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As per Vista’s CEO, Kimbal Riley, Will made big contributions to Vista’s progress for 11 years.

The Group declared a total revenue and EBITDA of $44.9 million and $6.4 million in H1 of 2021 due to a rebound in the broader industry and the free flow of films into theatres worldwide. In addition, Vista launched Vista Cloud on time and on budget, expanding prospects for the cinematic industry.

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VGL expects to make around $95 million to $100 million in sales for the year ending 31 December 2021. The Group also anticipates being cash flow and EBITDA positive for the second half of 2021.

On 12 November, VGL ended the trading session at $2.63, down 0.75% from its previous close.

Bottom Line

Investors must pursue a cautious approach while picking small caps for investment as they have high risks and generally outperform mid-cap and large-cap stocks.

(NOTE: Currency is reported in NZ Dollar unless stated otherwise)