Small-cap stocks, which have market caps between $300 million and $2 billion, belong in growth-oriented portfolios, since they have more room to run than larger companies. However, small-cap stocks are also generally riskier because the companies haven’t yet endured the growing pains of larger companies.
Today, three Motley Fool contributors will highlight a trio of small-cap stocks that deserve your attention…
The world’s second-largest wearables maker
Leo Sun (Huami): Huami is the Chinese company that produces Xiaomi‘s (NASDAQOTH:XIACF) fitness trackers, which controlled 13.5% of the global wearables market in 2018, according to IDC. That put it in second place behind Apple (NASDAQ:AAPL), which controlled 26.8% of the market. Former market leader Fitbit (NYSE:FIT) ranked third with an 8% share.
Huami also sells its own Amazfit wearables, which are sold at Xiaomi’s stores. Huami is more profitable than Fitbit because Xiaomi shoulders all the design, manufacturing, distribution, and marketing expenses for its Xiaomi-branded products. Furthermore, Xiaomi owns about a fifth of Huami, and Xiaomi CEO Lei Jun personally owns another fifth of the company.
This symbiotic relationship is controversial, and the critics claim that Huami is just a publicly traded subsidiary of Xiaomi. However, it’s gradually pivoting away from Xiaomi by producing more Amazfit devices, signing partnerships with Timex and PAI Health to expand its own ecosystem, and producing new first-party hardware — like its Huangshan-1 AI chip for healthcare-oriented wearables.
Huami’s revenue and adjusted net income rose 78% and 106%, respectively, in 2018. Its full-year gross margin expanded from 24.1% to 25.8%, and its total shipments climbed 52% to 27.5 million. Fitbit’s shipments, by comparison, fell 9% to 13.9 million last year.
Huami didn’t provide full-year guidance for 2019, but analysts expect its…
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