The upside in the Sonus call was versus a prior $6.78 close, but shares were closer to $6.00 the day before that. Sonus had such a strong gain that it closed out the week at $8.07. Maybe some of the upside was eaten up, but the 23% implied upside might mean investors should be opportunistic on pullbacks. Sonus has a $10.22 consensus price target and a 52-week range of $5.91 to $21.15.
Atmel Corporation (NASDAQ: ATML) traded lower this week after missing earnings and revenues. We saw many price target cuts and a formal downgrade by Dougherty & Co., but Needham & Co., Topeka Capital Markets, and Wedbush Securities all maintained Buy or Outperform ratings when they lowered their targets.
Atmel closed down 1.7% at $8.28 on Friday, lower than the $8.67 highs of the week and against a 52-week range of $6.32 to $10.50. Atmel’s consensus price target is now $9.21.
Cametek Ltd. (NASDAQ: CAMT) is a small-cap stock in the automatic optical inspection systems field. On Monday it was started as Buy with a $4.00 price target at Needham & Co., versus a prior $2.86 close and versus a close of $2.87 on Friday. Cametek has only 3 analysts covering the stock, but it appears that the $4.00 price target is shares by all.
So, back to those risk disclosures about small-cap and low-priced stocks. This is very important, and not considering risks can come with some very serious disappointments and can result in potential losses.
If analyst calls in Dow or S&P 500 stocks generally come with upside projections of 8% to 15%, what does it tell you when you see other calls for upside of up 25%, 30%, 50% or even more? It means there is a lot more implied risk.
Investors need to understand that Wall Street analysts are sometimes given more credit or clout than they deserve. Many analyst calls often fail to live up to expectations, and in many cases the analysts covering a stock have the same or hardly any more intimate knowledge about a company and its industry than investors.
Some of the speculative analyst reports even feel like they are all-or-none calls. They can be the proverbial Hail Mary pass. Some stocks with small market caps and low share prices just flounder for a decade or more. Some of the stocks end up getting delisted, and some of them even implode.
While there are young companies that eventually will grow up into multibillion giants, the reality is that most companies that are listed on the Nasdaq or New York Stock Exchange have limited total addressable markets. Also, some of them are just niche companies which simply may never make it above a certain size.
Lastly, small-cap and low-priced stocks are generally only suitable for very aggressive investors and traders. Conservative investors, retirees and the so-called widows-and-orphans investors better stick to larger well-known stocks, with dividends, with years of operating history and in businesses that are deemed very stable.