Top small-cap stocks to watch in 2025

Small-cap stocks in brief

In the United Kingdom (UK), small-cap stocks refer to companies trading on the Financial Times Stock Exchange (FTSE) small-caps index. These are businesses that are not large enough to be part of the FTSE 350. Typically, they have a market capitalisation ranging from hundreds of millions to a few billion dollars.

Potential and risk

Investors often see small-caps as having greater growth potential compared to more established companies on the FTSE 100 or FTSE 250. However, this potential comes with increased risk.

Their stock market performance can be unpredictable. For example, over the past five years, the FTSE small-caps index has risen by about 12%, a positive outcome despite underperforming larger indices like the S&P 500.

This overall performance conceals the fact that, during these five years, some companies have experienced exponential growth while others have stagnated or seen sharp declines.

Small-cap companies often operate in specialised niches or emerging industries. They are more vulnerable to economic downturns, have lower liquidity, and can struggle to access growth capital, especially in high-interest-rate environments.

Analyst coverage and valuation

Small-caps typically receive little or no analyst coverage, which can result in them being undervalued by the market. For growth investors seeking long-term investments, this presents an opportunity to gain an information advantage through independent research.

A common theme among small-caps is the necessity of a long-term perspective. They require time to reach their potential and are influenced by market sentiment in the meantime.

Top small caps to watch

The following 10 shares have been selected for their popularity and brand name recognition among UK retail investors.

Shoe Zone (LON: SHOE)

Shoe Zone is a renowned budget footwear retailer, with nearly 300 shops across the UK and a growing online platform offering free next-day delivery and returns. It sells about 14 million pairs of shoes annually, with an average retail price of $13.50. Low prices are achieved by sourcing directly from factories, including those of Skechers and Kickers.

In fiscal year (FY) 2024, Shoe Zone's revenues fell by 2.7% year-on-year (YoY) to $161.3 million, and it recorded an adjusted profit before tax of $9.5 million, down from $16.5 million in 2023. This decline was attributed to unseasonable weather, weak consumer confidence, and increased wage and tax costs.

Card Factory (LON: CARD)

Card Factory is a leading retailer of greeting cards and related products, offering a wide range of party supplies. Known for value and convenience, the company designs and manufactures most of its products in-house, resulting in unique offerings at low prices. It has expanded online to meet growing e-commerce demand.

In FY 2024, Card Factory's revenue rose from $364.4 million to $463.4 million, with profit before tax climbing from $11.1 million in 2023 to $52.4 million.

Marston’s (LON: MARS)

Marston's, a popular British pub and hotel chain, is well known for its brewing history, producing over 60 of the UK's favourite ales. The company operates 1339 sites, ranging from local pubs to family restaurants and town centre bars.

After selling its 40% stake in the Carlsberg Marston’s Brewing Company joint venture last July, the company reported a pre-tax profit of $14.4 million, compared to a $30.6 million loss a year earlier. Revenue increased by 3% YoY to $898.6 million.

Gym Group (LON: GYM)

The Gym Group operates 245 low-cost, no-contract gyms in the UK, open 24/7. With a focus on affordability and flexibility, along with a popular app and virtual classes, the company attracts many customers.

In FY 2024, revenue reached $178.6 million, up from $153.1 million the previous year, with the company moving from a $7.1 million loss to a $12.5 million profit before tax.

Evoke (LON: EVOK)

Evoke, formerly 888 Holdings, provides online gaming globally, operating brands in casino, poker, and sports betting. It was one of the first to receive a licence in the US online gaming market. Brands like William Hill and 888casino have strong recognition.

In a recent trading update for the fourth quarter (Q4) of 2024, Evoke reported revenue growth of 12% to 13% YoY, with adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) expected at the high end of the $300 million to $310 million guidance for the full year.

Metro Bank (LON: MTRO)

Metro Bank, a UK retail and commercial bank, is distinguished by its extended opening hours and extensive branch network, currently threatened by reduced hours. As the first new high street bank on the UK stock market in over 150 years, it has about 70 branches.

In the first half (H1) of 2024, the underlying loss before tax narrowed from $33 million to $26.8 million, mainly due to a lower net interest margin of 1.64%.

Hays PLC (LON: HAS)

Hays PLC is a global recruiting group, placing professional candidates across various industries in over 33 countries. It offers permanent, temporary, and contract roles, placing around 1000 people in new jobs daily. Hays also provides market insights and salary guides.

In its most recent quarter, Hays saw group net fees decrease by 12% YoY on a like-for-like basis, likely due to increased hiring costs.

Yu Group (LON:YU)

Yu Group supplies gas, electricity, and water to UK businesses, known for simple contracts and exceptional customer service. It has heavily invested in technology, including its customer portal, to streamline account management, focusing on sustainable energy solutions for SMEs.

In H1 2024, revenue rose by approximately 60% YoY to $312.7 million, with profit before tax rising 122% to $19.8 million.

Genus PLC (LON: GNS)

Genus PLC is a global leader in animal genetics for livestock breeding, enhancing food production efficiency. Its work in gene editing and genomics for pigs and cattle is world-leading, addressing major challenges like disease resistance.

In 2024, group revenue fell by 3% YoY to $668.8 million, while statutory profit before tax decreased 86% to $39.4 million, possibly due to reduced demand from China.

Mears Group (LON:MER)

Specialising in housing solutions and care services, Mears Group partners with local authorities and housing associations. It provides maintenance, management, and care services, managing over 17,000 homes and serving about 20,000 people daily in the UK.

In H1 2024, revenues rose 10% YoY to $580 million, with profit before tax increasing by 44% to $30.5 million, driven by grant funding, larger contracts, and strong management.

How to invest in small caps with IG

1. Learn more about small-cap stocks
2. Download the IG Invest app
3. Search for small-cap stocks on our app or web platform
4. Choose how many shares to buy
5. Place your deal and monitor your investment

Investors generally aim to grow their capital through share price returns and dividends - if they are paid. However, it's important to remember that the value of investments can decrease as well as increase. Past performance is not an indicator of future returns, and you could receive back less than your original investment.

Small-cap ETFs for diversification

We also offer various small-cap-focused exchange-traded funds (ETF), including the popular iShares MSCI UK Small Cap UCITS ETF, which aims to offer investors exposure to a diversified portfolio of UK small-cap companies, sporting a reasonable expense fee of 0.58%.