Pacific DataVision Inc. (NASDAQ: PDVW) may not be a household name in wireless communications applications yet. The company is into location-based solutions that aim to help increase field-based worker productivity and efficiency in dispatch and call center operations. It appears to have been public only since February, and it lacks coverage from the larger brokerage houses.
Pacific DataVision was started as Buy this past week at Canaccord Genuity, but the $79 price target was after a $44.25 close the prior day, and it compares to a Friday closing price of $43.85. After a recent share sale, investors should be expecting coverage from RC Capital Markets and William Blair soon as well. For some balance, or the other side of the coin: Zacks slapped a Sell rating on Pacific DataVision.
Planar Systems Inc. (NASDAQ: PLNR) was raised to Buy from Neutral at B. Riley last Tuesday. The firm issued a $6.00 price target, up almost 50% from the prior close, but compared to a Friday closing price of $4.67. That leaves the 50% ambition only possible in case it pulls back, but we would point out that Planar has a consensus price target up at $6.50, and one of the four analysts has a higher target of $7.50.
Planar has a 52-week trading range of $2.14 to $9.17. Speaking of small market caps, Planar has a mere $106 million market cap, even after being public for more than 20 years. Planar shares were as high as $30 after the prior March 2000 Nasdaq peak. Investors should also consider that Planar was generally a $2 stock for most of the past five years, before it rallied handily in 2014.
There were six analyst picks in the 50% to 100% range from the prior week. Those featured Advanced Micro Devices, J.C. Penney, Vical, Agenus, Eclipse Resources and New Media Investment Group.
Again, these research calls are far more aggressive than traditional Buy and Outperform ratings in S&P 500 and Dow stocks. The huge upside here sounds positive in each case, but investors need to understand that all these companies have much larger risks than most established companies. Some even have long-term viability risks, if the primary view for the research does not play out the way these analysts expect.
One issue to consider is that investors sometimes give Wall Street analysts too much credit. Analysts covering a stock often have the same or only a little more knowledge about the inner workings of a company and its industry than sophisticated investors.
Analyst reports sometimes feel as though they are all-or-none calls or Hail Mary passes. Some stocks with small market caps and low share prices even end up languishing for a decade, they end up getting delisted and some of the companies even implode. The harsh reality is that not all young and promising companies grow up to become multibillion giants. Another reality is that most public companies that are listed on the Nasdaq or New York Stock Exchange have limited total addressable markets. Sometimes stocks are destined by design to remain small-cap stocks and never make it above a certain size.
Lastly, most small-cap and low-priced stocks tend to only be suitable for investors with a high degree of risk tolerance. Conservative investors, retirees and the so-called widows-and-orphans funds need to stick to larger more established companies that pay dividends, have years of operating history and have businesses that are deemed very stable.