Investment decisions seldom come to life in a vacuum. Yes, some investors may buy a stock on impulse. They’re following a trend they’re heard about online and it triggers FOMO or Fear of Missing Out. But seasoned microcap investors will carefully consider a newly listed or still young public company before putting their money on the table. Any number of factors can influence the decision, although there are some common criteria most investors will evaluate as they manage their portfolios and mitigate risk.
This is one of the many investment topics slated for discussion at The Microcap Conference 2024, set for Jan. 30-Feb. 1 at Caesars Atlantic City Hotel and Casino. This three-day conference presented by DealFlow Events features technical programming designed for microcap investors and a presenting company track for pitching and socializing. The conference promises unparalleled networking opportunities in a luxurious venue in the heart of one of the world’s great entertainment destinations.
For small-cap companies looking to attract investors, here are some of the core considerations that go into their evaluation of a microcap stock, especially lesser-known companies that may be new to the public markets:
When microcap investors evaluate potential stocks to buy, they may first consider the company’s founder or CEO. Leadership ability and business experience are vital indicators for gauging the potential for success.
Strong Team Dynamics
Investors want to see a committed team with a passion for their product or service and ability to navigate early-stage challenges. The team should demonstrably share the founder’s vision and possess the skills and experience to handle business obstacles. To a large degree, the quality of a team speaks to the abilities of the company’s leadership, since they assemble the team.
What is the company’s market cap? Does it have sufficient cash flow for its runway to execute on business plans?
Proof of Concept
Is the company in a position to run a viable business? Conceptual ideas with the possibility of future riches are all very nice, but savvy investors want to see that the company’s services or products actually deliver as advertised.
Innovative Services or Products
Microcap investors want to uncover companies with a competitive edge. They look for businesses that present a unique value proposition or offer a compelling reason for customers to switch from existing habits. An attractive company’s customers should have no reason to choose competitors.
Addressable Market Opportunity
As with innovation, investors look for companies operating in either established markets or areas that offer significant growth opportunity. What is the addressable market size for the company’s core offerings? The answer to this question will tell investors a lot about the company’s growth prospects, especially in more competitive markets.
Microcap investors will also evaluate a company’s success rate in converting casual observers into paying customers. A streamlined and straightforward conversion process helps attract investor interest.
Sustainable Cash Burn
How fast is the company running through cash relative to establishing itself as a dominant player in its market? For revenue-generating companies, the burn rate is calculated as revenues minus operating costs and cost of goods sold (or the cost of providing services). This runway indicates how long the company can operate before depleting its cash reserves.
Comprehensive Capital Utilization Plan
Investors who buy a stock want to know how their investment is being deployed. A financial forecast provides insights into the allocation of funds, timelines, and anticipated impact on revenue, operating costs, cash flow and ultimate profitability.
Managing Risk and Investor Expectations
Experienced investors look beyond the boilerplate language about risk that’s commonly found in a company’s investment prospectus and regulatory filings. But anticipating where as-yet unknown risks might be coming from? That’s the real key to managing an investment. Nobody likes surprises that cost them money, yet small-cap companies remain notorious for disclosing little-to-no useful investor information.
Corporate transparency and candid engagement with both shareholders and potential investors can help a young company build a quality reputation, which will prove invaluable over the long term. Open and regular communication from management fosters an environment where investors may be more likely to forgive the occasional quarterly hiccup – as opposed to hitting the exits en masse at the first whiff of bad news.
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Tickets to the inaugural Microcap Conference 2024 are going fast. Reserve your seat now for three days of unsurpassed networking and technical discussions of the microcap sector with some of the best names in the business – institutional investors, finance-focused law firms, venture and private equity fund managers, deal advisors, PIPE funds, brokerage firms, investor relations professionals, accredited retail investors and many more. The conference schedule is also packed with entertainment and exciting activities set against the backdrop of Atlantic City’s bright lights.