Small company stocks tend to perform better than large company stocks as a bear market ends, leading the way from recovery to the next bull market. But America's investment clubs are currently underweighted in small company stocks, with just a single stock included in the myICLUB.com top holdings for November 2022.
Fundamental stock investors prefer to define the size of a company by its revenues as opposed to using market cap. Market capitalization defines how popular a stock is, but categorizing companies by their revenues provides a better understanding of the scale of a company's underlying business. BetterInvesting defines a small company as having annual revenues less than $1 billion (large companies have revenues greater than $10 billion, and midsized companies are in between). This is the same definition of company size that are used in myICLUB.com and other tools from ICLUBcentral.
As of November 30, 2022, there was just one small company stock in the top 100 stocks owned by clubs using myICLUB.com, ChargePoint Holdings Inc. (CHPT), the 74th most popular stock held by investment clubs in the month (ranked by number of clubs holding the stock at month-end).
ChargePoint is a provider of electric vehicle (EV) charging networks in the United States and internationally and reported total revenues of $241.1 million in the last four quarters, placing it at the lower end of the small company size range. ChargePoint went public in 2021 as a special purpose acquisition company (SPAC), so there is little history available for the company. One thing we do know is that the company has not yet turned a profit. This makes the stock more of a speculative buy than most other top investment club holdings. While there is certainly demand for electric vehicle charging stations to be built across the country, there is much about the scale and economics of the business that has yet to be resolved. Much of the market would seem to be uncertain about the company's prospects as well, with ChargePoint's price down more than 80% since its IPO in March 2021.
ChargePoint's current market cap is $4.143 billion, which defines it as a mid-cap stock. This illustrates the discrepancy that can exist between the definition of company size by revenues and by market capitalization.
For investors and investment clubs looking to boost the small company allocation in their portfolios, the SmallCap Informer newsletter is a great place to begin. Each month, the newsletter features smaller company stocks that have strong fundamentals and reasonable valuations. Check out a sample issue and a special discounted offer at www.SmallCapInformer.com.
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