A detailed research report by John Hancock Investment Management sheds light on the performance dynamics of small-cap stocks, revealing a compelling trend: historically, these stocks have exhibited higher average returns compared to their larger counterparts. This insightful study focuses on the concept of size premiums within the U.S. market, highlighting the substantial historical performance metrics associated with the Fama/French U.S. Small and Large Cap portfolios. The findings indicate a striking reality; since the 1920s, small-cap stocks have consistently outshined large-cap stocks in terms of overall performance.

Another significant study conducted by Invesco in 2020 corroborates these findings, showing that small-cap stocks have outperformed large-cap stocks following four recent recessions, with only one exception in subsequent one- and three-year periods. Such data underscores the high growth potential that small-cap stocks represent, making them particularly appealing to analysts and investors alike. These stocks often thrive in diversified portfolios, behaving differently than their large-cap counterparts due to their unique characteristics.

Small-cap stocks, which are defined as having market capitalizations ranging from $300 million to $2 billion, are often seen as having greater room for growth. The early stages of many small-cap businesses create opportunities for substantial stock price increases. Additionally, the volatility associated with these stocks presents investors with the chance for short-term trading and capitalizing on price swings. Many small-cap companies operate within specialized or niche markets, which enables analysts to leverage innovative business models that can yield impressive returns if executed successfully.

Another noteworthy aspect of small-cap stocks is their frequent status as targets for mergers and acquisitions. This inherent potential for buyouts often results in a premium on their share prices, leading many analysts to keep a vigilant eye on these stocks in anticipation of lucrative buyout offers.

Despite the higher volatility and inherent risks associated with small-cap stocks, history demonstrates that they have outperformed large-cap stocks in various market conditions. For example, during the tech bubble of the 1990s, large-cap stocks were the darlings of many investors. However, once the bubble burst in March 2000, many small-cap companies began to outperform their larger peers.

Ultimately, the performance of a stock is not solely determined by its market capitalization but is heavily influenced by the broader macro and microeconomic environments. Small-cap stocks often fly under the radar of analysts and investors, leading them to be undervalued relative to their larger counterparts. This undervaluation presents a significant opportunity for savvy investors looking to achieve high returns.

In a market dominated by high-cap corporations, the ability to identify the right small-cap stock at the right time and price becomes crucial. As investors chase after the giants of Wall Street, it’s essential to pause and evaluate whether those stocks genuinely warrant their lofty valuations. Or, perhaps, investors should consider whether a high-growth small-cap stock might deliver greater returns.

In a recent statement, Francis Gannon, Co-Chief Investment Officer at Royce Investment Partners, expressed his insights regarding small-cap stocks, noting the importance of careful analysis.

As part of this exploration, we recently published a list of ten small-cap stocks that exhibit significant upside potential. One of the stocks highlighted in our analysis is Kura Sushi USA, Inc. (NASDAQ:KRUS), and we will delve into how it compares to other small-cap stocks with considerable growth prospects.

To effectively choose the right small-cap stock, it is vital to monitor not only the stock itself but also its industry peers. This broader perspective allows investors to make more informed decisions. Critical factors influencing stock selection include liquidity, sensitivity to market fluctuations, financial stability, and the ability to integrate artificial intelligence technologies. The selected stocks encompass diverse industries, ranging from finance to food and mining, and are chosen for their high upside potential.

Our methodology involves utilizing Finviz and Stock Analysis screeners to identify ten stocks with market capitalizations between $300 million and $2 billion. Additionally, we extracted one-year price targets from Yahoo Finance to assess the upside potential based on stock prices as of March 28, 2025. These companies are then ranked according to their projected growth potential.

At Insider Monkey, we have a profound interest in hedge funds and their stock picks. Our research indicates that mirroring the top selections of successful hedge funds can lead to market outperformance. Our quarterly newsletter employs a strategy that selects 14 small-cap and large-cap stocks each quarter, achieving an impressive return of 373.4% since May 2014, significantly surpassing its benchmark by 218 percentage points.

Regarding Kura Sushi USA, Inc. (KRUS), this company operates as a technology-enabled Japanese restaurant chain in the United States, previously known as Kula Sushi USA, Inc. until its rebranding in 2017. Based in California, Kura Sushi specializes in innovative dining experiences, featuring on-demand ordering screens, plate slots, Bikkura-Pon rewards machines, and express conveyor belts. Their menu includes authentic Japanese dishes, such as Sweet Shrimp, Tuna, Garlic Tuna Steak, and Salmon, delivered through cutting-edge service models.

Kura Sushi has garnered considerable attention from Wall Street, thanks to its consistent double-digit growth and strong debt management. The company boasts impressive restaurant-level margins, making it a compelling investment choice. Notably, Kura Sushi plans to open approximately 14 new restaurants in 2025, maintaining a year-over-year growth rate nearing 20%. This ambitious expansion, coupled with a strategic market approach, positions Kura Sushi for maximized potential.

However, expansion isn’t the sole driver of growth for Kura Sushi. The company has recently introduced an enhanced reservations strategy and a self-service system that focuses on improving operational efficiency. Alongside initiatives like the ‘Perfect Pair’ promotional campaign and innovative pricing strategies, Kura Sushi aims to make significant gains despite a challenging initial public (IP) calendar for the first half of FY 2025. Analysts, including Todd Brooks from Benchmark, affirm a Buy rating for Kura Sushi, setting a price target of $100. Brooks considers Kura Sushi to be a leading pick within the dining sector, highlighting its immense upside potential.

Overall, KRUS ranks seventh on our list of small-cap stocks with significant growth potential. While there is a strong belief in KRUS, we also recognize that AI stocks present even more compelling opportunities for higher returns in shorter time frames. An AI stock that has performed well since the beginning of 2025 contrasts with popular AI stocks that have lost approximately 25%. For those seeking promising AI investments that trade under five times their earnings, we recommend checking our report on the most affordable AI stocks.

In conclusion, small-cap stocks represent a captivating segment of the market, offering substantial growth opportunities. Investors should carefully consider the potential of these stocks, particularly in the context of evolving market dynamics.