While small-cap stocks often have more volatility than their large-cap counterparts, they can also have more long-term growth potential for patient, risk-tolerant investors. We asked three of our Motley Fool contributors to discuss their favorite small-cap stocks to buy right now, and here’s why they think BlackLine (NASDAQ:BL), Axos Financial (NYSE:AX), and Bank of Hawaii(NYSE:BOH) are worth a closer look.
An accounting-as-a-service solution
Matthew Cochrane (BlackLine): BlackLine offers cloud-based software-as-a-service solutions to enterprise clients that allow them to perform continuous accounting, meaning that they can reconcile transactions in real time and do not have to close the books at the ends of months or quarters. This gives BlackLine’s customers access to current information and automates tedious tasks that previously ate up a lot of employee hours.
In 2018, revenue rose to $227.8 million, a 30% increase over 2017, while free cash flow grew to $4.2 million, up from a loss of $2.2 million the year before. In Q4, BlackLine added 137 net new customers, bringing its total to 2,631, a 19% increase year over year. Once customers start using BlackLine’s platform, they rarely leave. In Q4, BlackLine experienced a 98% customer retention rate, clearly demonstrating the value in the service.
Customers are not just staying, either; on average, they are spending a little bit more every year. The company’s dollar-based net revenue retention rate was 108% in the fourth quarter, meaning that existing customers from 2017 spent 8% more this year than last. BlackLine’s management is working diligently to add more accounting-software solutions to its suite of products, so that these customers will continue spending more year after year.
A small bank that could become much larger
Matt Frankel, CFP (Axos Financial): Formerly known as BofI Holding (or Bank of Internet), Axos Financial is an online-only bank with strong growth. And, with shares still trading for nearly 30% below their 52-week high, it could be a major bargain in an otherwise expensive stock market.
Because of its branchless structure, Axos runs a much leaner operation than its peers. In fact, its noninterest expense as a percent of assets is nearly a full percentage point less than its peer group, 1.86% vs 2.82%.
Growth has been quite impressive in recent years. Over the past year, Axos has grown its deposit base by…
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