3 Overlooked Stocks Where Rewards Outweigh the Risks

Key Points

• In a crowded market, lesser-known companies may present a unique growth opportunity despite the risks associated with being smaller than big-name firms.
• Weave Communications, PubMatic, and Zeta Global have all experienced rapid growth and have strong fundamentals.
• Each of these companies faces risks related to issues like profitability or competition within industry, but investors may find that the pros outweigh the cons.

With big tech and AI names dominating headlines, it's easy for investors to overlook lesser-known stocks with long-term growth potential in a crowded, busy market. Firms like Weave Communications NYSE: WEAV, PubMatic NASDAQ: PUBM, and Zeta Global NYSE: ZETA do carry risks, particularly given their relative lack of brand recognition compared to giants in their respective industries. However, each of these firms has a sizable potential upside thanks to a combination of fundamentals and strategic positioning. For many analysts—and savvy investors—the possible benefits of these names can outweigh their risks.

Niche Business Software Firm Growing Thanks to Acquisition, AI Integration

Despite its small size at just over $500 million in market value, Weave Communications has carved out a niche in specialized communication software and tools for smaller and medium-sized businesses across a range of industries. The company's focus on industry-specific SaaS generates recurring revenue, and it's a strategy that has paid off: in the latest quarter, Weave boosted its revenue by about 16% year-over-year (YOY) to nearly $59 million, beating estimates. Free cash flow also improved for the first half of the year (to $3.4 million from under $1 million in 2024), as did gross margin in the last quarter.

A catalyst for future growth is Weave's recent acquisition of TrueLark, a provider of AI scheduling and customer service software. As Weave continues to integrate TrueLark's offerings into its cloud-based platform, it will likely have a particular benefit for the company's medical business, which is already among its fastest-growing segments. These AI tools should enhance the "stickiness" of Weave's tools, encouraging deeper engagement—and retention—among customers.

Weave's primary risks for investors include its lack of profitability, although its operating losses have narrowed, as well as the significant competition it faces from larger firms like Salesforce NYSE: CRM. So long as it can continue to find its niche, though, Weave may be able to achieve analyst upside estimates of nearly 130%.

Profitability and Revenue Growth in Fast-Changing Digital Ad Space

Supply-side advertising platform PubMatic makes it possible for publishers to monetize and automate digital content in a variety of ways. Despite strong second-quarter results—revenue climbed by 19% YOY as the company enters year 10 of consistent profitability—shares of PUBM are down about 45% year-to-date (YTD) as the firm faces platform changes from a DSP partner. This shift has created some headwinds for PubMatic in the second half of the year, but there are also important momentum generators as well: the digital advertising market is growing at a healthy pace, and PubMatic has a unique offering that is compelling for potential clients.

Helping to enhance PubMatic's appeal is the fact that it owns and operates its own infrastructure, which sets it apart from some of its larger ad-tech rivals. This has allowed the firm to maintain strong free cash flow and its profitability, a rare feat for the industry amid turmoil in recent years.

Still, risks remain for investors. Beyond the near-term volatility mentioned above, ad spend tends to be cyclical and dependent upon broader economic factors, and PubMatic's relatively small size means it will continue to need to differentiate itself by its product offerings in a fast-evolving industry. Analysts see more than 53% in possible upside for PUBM shares, though, signaling the potential for a recovery.

Big Revenue and Cash Flow Gains in the Challenging Marketing Space

Zeta Global is a marketing technology firm utilizing AI to process data and personalize outreach at scale. The company's total addressable market is massive, and the marketing tech space continues to grow rapidly. It also has the benefit of a strong roster of clients in retail, healthcare, financial services, and other sectors, a fact that has contributed to its recent revenue gains of 35% YOY to $308 million in the latest quarter.

Zeta is also seeing higher cash flows, with operating activities generating net cash of $42 million (up 35% YOY as well) last quarter and free cash flow of $34 million, a 69% YOY improvement. Combined, these factors have led the company to boost its guidance for revenue and adjusted EBITDA for both the current quarter and the full year. The company is putting its larger cash reserves to use with a new stock repurchase and withholding program of $200 million, instituted in July.

As the firm focuses on growth, profitability has remained elusive. The industry Zeta operates within is crowded, and regulatory concerns surrounding data privacy could complicate its plans to scale operations. However, a majority of analysts see ZETA shares as a Buy, and 58% in upside potential is likely to appeal to investors.