3 Bargain-Cheap Small Caps Worth a Second Look

Key Points

• Low P/E stocks can signal value, but finding catalysts is the key to unlocking upside.
• Many low P/E stocks are small-cap names, which may outperform if a broader market rally takes hold.
• Each stock offers a different bull case: biotech growth, dividend recovery, and energy momentum.

The price-to-earnings (P/E) ratio is a commonly used metric that provides a snapshot of a company’s valuation. The average P/E ratio of stocks in the S&P 500 is around 27X. Any stock with a ratio below that number may offer value relative to its earnings.

However, to be considered a “low P/E stock,” a P/E ratio is usually between 5X and 12X. Not surprisingly, many of the stocks that meet that low P/E threshold tend to be smaller companies that fly under the radar of institutional investors.

And this may be the right time to look at this combination of low P/E small-cap stocks. Many analysts believe that small-cap stocks will perform well if there’s a broader stock market rally.

Sometimes a low P/E ratio can point to a fundamental problem with a company’s business. However, with appropriate catalysts, it can be an opportunity to accumulate shares of companies where the growth case may be getting overlooked. This article examines three small-cap stocks with low P/E ratios and the reasons investors may want to give them a closer look.

Innoviva—A Biotech With Royalties, Drugs, and a 51% Upside Case

Many biotechnology companies are small-cap stocks. That's because, in many cases, these are still clinical-stage companies, meaning they don’t have commercially available drugs. But when they do, it can cause the stocks to move higher quickly.

That may be the case with Innoviva Inc. NASDAQ: INVA. The company is somewhat unique among biotech companies due to its three-part business model. The funding layer comes from stable, high-margin royalties it receives from respiratory drugs it developed with GSK NYSE: GSK. The company is also developing its own specialty therapeutics focused on critical care and infectious diseases. Plus, it has a portfolio of strategic healthcare investments.

Innoviva has shown strong year-over-year revenue and earnings growth.

More significantly, the company is becoming less reliant on royalty revenue, which dropped to 60% of revenue from 72%.

That said, the company had a one-off gain of approximately $161 million in 2025 that increased its net income. That's non-recurring revenue, which is why analysts project a 42% decline in earnings in 2026 before a return to earnings growth in 2027. Despite that projected earnings drop, analysts have a consensus price target of $34.80 on INVA, which would be a gain of about 50%.

Wendy’s—A High-Yield Dividend Play Waiting for the Consumer to Come Back

Wendy’s NYSE: WEN may be an example of a stock becoming so bad it’s good. The company had a poor earnings report in February, punctuated by an alarming decline in same-store sales.

Like many restaurant chains, Wendy’s is suffering as many consumers are simply not dining out as much. And even “affordable” fast food restaurants are under pressure as many consumers are seeking out healthy options by choice or due to the impact of GLP-1 drugs.

However, the company is controlling what it can. That means shuttering underperforming restaurants. Wendy’s is also showing solid international growth, which is at least one bright spot for investors.

Another potential bright spot is the company’s dividend. That yield of over 8% deserves context, though.

Simply put, the yield is high because the stock is down, not because the payout was raised, and whether that dividend holds depends heavily on many factors that may be outside of the company's control.

Having said that, the dividend seems to be supported, for now. If the economy improves and the company’s target consumer is on a more solid footing, accumulating WEN at this level may result in significant compounding in the future.

Nabors Industries—An Oil-Driven Momentum Trade With an Earnings Catalyst Ahead

Nabors Industries NYSE: NBR is an example of investors riding the hot hand. The oil and gas drilling services company’s stock has shot higher in 2026, along with many energy stocks. Those gains have accelerated with the recent spike in oil prices.

Investors may wonder if this is a good time to chase NBR higher. Analysts have been raising their price targets, but even the highest price targets don’t provide much upside from where NBR trades as of this writing.

That makes Nabors a speculative pick among this group, but the key may come down to earnings. The company will report in late April.

By that time, there may be more clarity around the Strait of Hormuz. If the standoff continues, oil prices will remain elevated.

Even if there is a resolution, it will take some time for the market to reset and demand for oil has other catalysts beyond the conflict in Iran.

Still, the price of oil could retreat as quickly as it shot higher. But, as a momentum play for the next quarter, NBR is a solid choice.