Why These 5 Small Caps Are About to Explode

Small cap stocks can provide really big opportunities for long-term investors. If you can find the companies that are going to be the next disruptive companies in their industry. So, we have five that we want to talk about that have high potential. Just go through them to start. One-stop systems, Zeta Global, Planet Fitness, Transmetics, and Raspberry Pi. John, I'm going to have you start with OneStop Systems. What is this company? Onetop systems. Let me tell you what it is not. So investors don't really like this company because it's been really inconsistent over the years. Margins have been inconsistent. The company just sold the inconsistent part of its business. So this was Breer. It sold this to another firm. It got the cash. Now it is in a cashrich debt-free position. And now it is able to focus on the part of its business that is I think has big potential. and that is this rugged edge AI hardware platform that is building out. So this actually has military applications. I I like this company because I have a very specific belief on where the world is headed. I believe that the military specifically the US military I believe it wants to deploy AI more. Uh I also believe that if you are going to deploy AI as a military uh customer, you're not going to be want wanting to do that from the cloud for security reasons and also for latency reasons. And so that does necessitate local AI. Um and if you're going to have local AI, so kind of your own little hardware in the field, it needs to be rugged as well. And so one-stop systems uh products actually address all of these things on where I believe the world is going here. >> So basically this is a one-stop system, but you know the military is kind of the target market and it's it's all these Gemini if you will uh in a box. Is that kind of the way to think about it? >> Yeah, I mean it's it is going to be easier to deploy at least from the hardware perspective but also yeah it does offer software. And here's the thing after it sold off that inconsistent part of its business Breer and now you look at what it just has done and it's only been one quarter I believe since the estature of the other part of the business. So it just reported 8 million in first quarter revenue that was ahead of expectations and up 55% year-over-year. So really great growth rate and it also got $15 million in new bookings during the quarter. And so you're kind of seeing it, albeit that's small, but these are small caps, but you are seeing some adoption here. You are seeing some customers starting to experiment. And I think that's a trend that's really going to start to gain momentum within the next couple of years. I want to take just a quick second to tell you about Molly Fool's Epic Services. Got everything you need to build a powerhouse portfolio minus the Wall Street stiffness. Premium stock picks, elite research tools, and battle tested strategies. If you want access to Montley full Epic, go to full.com/epic-50. That's full.com/epic-50. Another one in the AI space that I wanted to bring to the table a little bit little bit bigger. Uh, OneStop Systems is about a $300 million company. Zeta is about a $5 billion company. That was kind of the cap that we were looking at today. And this is a company that's on the application layer for artificial intelligence. So they're not making models, but they're taking their own data and then they combine that with customer data to target advertising, marketing. That's at least what their core business has been long term. So this is big companies. They're not working with, you know, tiny mom and pop shops. They're working with the Nikes, the Gaps of the world. They don't create the ad, but they say, "All right, where are we going to place this? Are we going to put this on an Instagram ad? Are we going to put it on somebody's Facebook feed or a Google on the Google feed?" And then what is the ROI of that advertisement? And so they're making they're helping make those decisions and those are digital dynamic decisions that are really powered by artificial intelligence. It's a direct or indirect competitor uh with the trade desk. For example, GAP just pulled out a bunch of their different suppliers. The trade desk was one of them. Place them with Zeta Global. The interesting thing for Zeta, so they've got really good operating metrics over the past few years. They've got high goals for 2028. you know, 25 compound annual growth rate over the past three years, 50% in just the first quarter. But this is potentially going to be an even bigger addressable market going forward because they're moving into business intelligence. So if you have all the information about well how here's how our market is going to going to work here's how we're spending money here's our return on that spending you if you just dig a little bit deeper you could go okay well you could actually be more efficient by spending a little less here or investing money over here so that business intelligence the things that you know C CEOs vice presidents think about where should we make in investments in our business that's really high value and that's where they're targeting next so So I think you're getting a pretty reasonable value about 22 times forward earnings uh with a company that has shown its ability to grow in its current market and potentially expanding the size of that addressable market by moving into more business intelligence. Zeta is one of those companies that I've also researched Travis and one that I loved up and down the board. The only reason that I have not pulled the trigger yet on Zeta is because I am uncertain of the competitive dynamics in the world where AI is disrupting seemingly everything at the software application layer. >> Fair. >> And so yeah, this is one that I wish that I could project more into the future. What is this space going to look like in three years, four years, 5 years as AI progresses? I haven't been able to answer that, so I'm on the sidelines. But I do love the business where it stands today. Yeah, and I that's a totally fair push back. I think this is one of those where it's small enough the riskreward is kind of the right place for me that I'm willing to, you know, put a put a few chips on Zeta Global being one of the winners. If this was a company that was trading for, you know, 25 billion, $30 billion where that upside was already priced into the stock, I would probably think about it very differently. But the fact that it is a relatively small company today with a lot of potential is why it's definitely one I think investors should be keeping an eye on. All right, tell us about Planet Fitness. >> Yeah, Planet Fitness. Many people know this company. I believe it's close to 3,000 gym locations around the world, most of them in the US, though. This stock is down over 50%. It has been down 50% before. That was very briefly in the early days of the CO 19 pandemic. Of course, the gyms were closed at the time, so that makes sense. So, this one a little bit different being down over 50%. Basically, the company went to put in some price increases to some of its top tier membership programs and then it decided to pull back on that. Then it also revised some of its long-term guidance and so this is indicating a lot of uncertainty from management. Investors are clearly spooked because they do not like uncertainty. We get that. But now the stock is down big and you know kind of the cheapest it's ever been for what I think is actually a pretty solid business. Yeah, this is one of those the the gym space is always been a little bit hard but they've they seem to be in a niche where you know they it's a relatively lowcost business to operate once you get these up and running. It is a subscription business. So, if you're getting in for the right price and currently trading for about 16 times uh forward earnings estimates, although you know the stock is down sharply in 2026, that's that rerating of the company that you were you were talking about. Uh but definitely an opportunity if they're able to turn things around to get a higher multiple as well. What's so interesting about Planet Fitness is it is the lowcost leader in the gym space and that is a weird niche to be in. Basically, it is profiting off of the majority uncommitted gymgoers. The people who get a membership intend to use the membership but don't really use the membership but it's so cheap they don't cancel it. Whereas other gyms kind of try to provide this more premium experience. And what actually winds up happening in my area, I can attest recently, some nicer gyms shutting down because they simply can't afford to operate because there aren't enough of these highly committed members who are willing to pay that higher price point. So, they actually wind up shutting down. And what does it do? It pushes more people to Planet Fitness. This is a primarily franchised business. And so this is so long as those franchises stay healthy. Everything that I've seen so far indicates that the majority are in a healthy place financially that keeps the gym open, keeps people coming in, gets Planet Fitness taking that that high margin cut of the business. They get to make equipment sales periodically. We're in kind of an equipment uh cycle right now. So I think that everything is solid and this and here's the thing. Planet Fitness is still growing right now even with everything all the uncertainty I told you about. same store sales still up and profits still profitable. In fact, the profits are still growing. So, this is not a dying business. It's just confusion and I think that it's a good price for the long term. >> To put those numbers into a little bit of perspective, it was just looking up uh Planet Fitness compared to Lifetime. So, it's going to be very very different price point. I mean, Lifetime uh depending on the tier place that you're going to can be $300 or more per month. Planet Planet Fitness operating margins right now about 30%. Lifetime. This is a good time for Lifetime. Right now, their operating margins are still only about 16 and a half%. So, that's what you're talking about is those people that are paying more are actually going to use those services and expect a really nice gym. They're going to expect the towels to be clean and all that kind of stuff. Whereas, if you're paying a very low monthly fee, you just might not show up. And that's 100% margin for the people that are operating those gyms. All right, let's talk about Transmetics. This is a company that I know I have started covering a little bit more less than a $3 billion market cap. What they are doing is they're making a device the OCS device organ or organ care system that actually makes it more viable to transplant an organ heart liver and lungs is what they're doing right now to another person. So if you know unless you're sitting next to the person you're actually getting an organ from, the more time that you have between the organ going out of one person's body and into another person's body, it deteriorates the the likelihood that that's going to be a successful transplant. What Transmetics has done is created a device that essentially kind of keeps that organ alive and that allows them to actually fly those those products, you know, instead of you always remember seeing the pictures or maybe you've seen somebody on a plane with a with literally a igloo cooler on ice with an organ inside. That was how they used to transplant a lot of these organs. So, they have a totally different process. It means that those organs are going to be more viable. It also means you're essentially testing that organ throughout that entire process. So all of this makes it more possible to do more organ transplants. That's exactly what they've helped drive is an increase in the number of organ transplants that have happened in the US. They have their own it's kind of like a vertically integrated business. They have transmetics doctors who are going in to take the organ out. They put it in the transmetics device. They fly it on a transmatics plane in some cases and then help it put it put that uh organ into the next person as well. There's been some tumult around the stock. It's pretty volatile stock. There's been short reports. There's been, you know, talk about them price gouging and things like that. So, it's it's not like there is no flaws in this business. But when you're talking about saving lives, when you're talking about making it more viable to transplant organs, that's just I want to be on that with those kind of positive impacts as a tailwind to the business, you know, even if not everything is quite answered in the details. But what do you think about transmatics? >> Well, I mean, you think about the fact that we can transplant an organ at all, I think is absolutely a medical miracle that maybe we take for granted today. But think about the people down through history who who lost a spouse or a child or a parent because they needed a liver transplant and couldn't get one. And here Transmetics, I mean, just really changing the game. And I I think that's just incredible when you want to see this company succeed. I think now I I don't know anything about the price gouging or anything like that. And of course, I'm I'm sure that there's conversations that can be nuanced and that need to be had. That said, I think that generally speaking, we want to see this company succeed because it means saving more lives with a really important product and that does get me excited as well. >> All right. Why are you excited about Raspberry Pi? And what is a Raspberry Pi? >> Raspberry Pi. Some people watching this show right now will know what I'm talking about, but this is a company that really sells products that started more with the DIY enthusiast for people who wanted to learn how to solder, who wanted to learn how to connect computer components, who wanted to learn how to code. This was a lot of just cheap components that you could put together on your own, make your own computer, you could make your own many things. I I've been looking at it for little projects, maybe making a smart mirror, you know, for the house where I can look at the weather, but also it's a mirror and they have all that. You could build that yourself for a a very reasonable price. So, that DIY market has really built this company over the years. What has turned out in the more recent years is that the um more of the corporate side of things, more of your enterprise customers are starting to pick up these products because there's just a lot of adaptability. You can configure these in a lot of ways. And again, going back to where we started with this video, I believe that local AI is going to be a very big trend over the next couple of years. I think that a lot of people are wanting to rein in their AI spending. They don't want to do it all on the top model on the cloud for several reasons, the cost, but also security. And I think that more things are going to be transferring to devices in your home or in your place of business. And this really speaks to that trend. This company is essentially selling everything that it can get its hands on right now. It's a small company and all of a sudden this huge wave of demand and it does actually have products that are specifically for building out your own little AI box at home. And those things are really, really hot. And it's not just from the DIY customer anymore. >> Yeah, this is one I I keep hearing about Raspberry Pies and I've still never used one. But now you have me intrigued from both a customer standpoint and as an investor, the compound annual growth rate over the past few years is about 23% and they're looks like they're also getting uh you know a little bit of operating leverage as well. So if that addressable market continues to rise, this is not going to be a about a $ 1.9 billion market cap. It should be much bigger than that. >> Yeah. And just as a little I don't know validation point if you will there is kind of a competitive product out there in Arduino and Arduino was recently acquired by by Qualcomm and it's very interesting that Qualcomm would want a business like Arduino right and so what does it see in this kind of market that it wants to get its hands on that is what Raspberry Pi is still playing to as an independent company >> right well let us know what you think about onetop systems Zeta Global Planet Fitness, Transmetics, and Raspberry Pie. Which one's going on your list or is in your portfolio? Don't forget to subscribe to the Mly Fool here on YouTube. Thanks for watching everybody. See you here next time.