In the Shadow of Blue Chips: 4 European Small-Caps to Invest in This August

Investor attention in the European market is primarily focused on the largest technology, industrial, and defense companies—from ASML and SAP to Rheinmetall. At the same time, many high-quality second-tier companies remain in the shadows.

One reason is the structure of the modern stock market. The main inflow of capital is directed toward index funds and ETFs, which automatically increase the weighting of the largest issuers. As a result, their valuations are rising, while many small- and mid-cap companies continue to trade at a significant discount, despite improvements in their fundamentals.

Financial reports for the first half of 2026 show that this trend is continuing. Several second-tier European companies have not only posted strong financial results but have also confirmed or raised their full-year forecasts. At the same time, each of them is benefiting from long-term structural trends—the development of AI, the digitization of the automotive industry, the restructuring of supply chains, and the transformation of the retail sector.

We have selected four small-cap stocks that are most attractive to investors in the second half of the year:

The AI boom is impossible without large-scale investment in energy infrastructure: modern data centers require ever-increasing amounts of electricity, more complex power distribution systems, and new solutions in the field of power electronics.

This is where the French company Mersen operates—it manufactures components for power distribution, electrical circuit protection, power electronics, and the semiconductor industry. Its products are used in data centers, railway infrastructure, electric transportation, industrial automation, and the aerospace sector.

The company’s financial results confirm that demand in these segments remains high. In the first half of 2026, Mersen’s revenue reached €611.5 million, representing organic growth of 3.9%. EBITDA amounted to €97.4 million, with a margin of 15.9%, and net income grew by approximately 5%.

The Electrical Power segment posted particularly strong results: its organic growth reached 11.1% thanks to developments in electrical infrastructure, data centers, power electronics, and silicon semiconductors. Against this backdrop, management has raised its forecast for the full year 2026, now expecting organic sales growth of 4–6% and further improvements in profitability.

Another important point is the growing role of data centers. Mersen expects this segment to generate more than €40 million in revenue this year—nearly double the amount from the previous year. In other words, AI is gradually evolving for the company from a long-term opportunity into a source of actual revenue and cash flow.

Risks include the weakness of the Advanced Materials division, pressure from the solar energy market, and a relatively high debt burden following a large-scale investment program. The change in CEO in the spring of 2026 creates additional uncertainty.

Mersen's stock has risen by nearly 69% since the start of the year. According to Market Screener, the company has a total of four “Buy” ratings and one “Hold” rating. The average target price for its shares is €47.2, which implies a 17% increase from the closing price on August 5.

Over the past ten years, the automotive industry has changed far more dramatically than it did over the previous few decades: automakers are now competing in the areas of software, autonomous driving, and electronic driver-assistance systems.

Elmos Semiconductor, a German company, manufactures analog and mixed-signal integrated circuits for ADAS systems, smart lighting, sensor platforms, climate control, and other automotive electronic modules.

After several challenging years marked by inventory adjustments among automakers, business is picking up again. In the first quarter of 2026, revenue rose 20.2% to €152.5 million, EBIT increased by 41%, and the operating margin reached 23.8%, compared with 20.2% a year earlier.

Free cash flow (FCF) showed particularly strong growth: the adjusted figure stood at 26.7% of revenue (€40.7 million), compared with 17% a year earlier (€21.5 million). Following the release of its results, the company raised its forecast and now expects sales growth of approximately 12% with an operating margin of 23–26%.

Elmos’s main long-term growth driver is the continued integration of electronics into vehicles. The development of ADAS, the shift toward software-defined vehicles, and the digitalization of vehicles are driving demand for the company’s products.

There are risks as well. The automotive industry remains cyclical, and following a significant rise in stock prices, some of the positive expectations are already priced in. In addition, Elmos has warned of a potential shortage of 8-inch silicon wafers amid high global demand for production capacity driven by the development of AI.

Since the beginning of the year, Elmos’s stock price has risen by about 50%. Three analysts recommend buying the company’s shares, while two recommend holding them. The average price target is €185, with upside potential of about 25% from the closing price on July 5.

The investment story of Finland’s Scanfil is linked to the restructuring of global supply chains. The pandemic, the energy crisis, and rising geopolitical risks are forcing European manufacturers to diversify their production, reduce their dependence on specific regions, and relocate some of their capacity closer to end markets (reshoring/nearshoring).

Scanfil is a contract electronics manufacturer serving the industrial and energy sectors, as well as medical device manufacturers, telecommunications companies, and aerospace firms. Its diversified customer base helps the company remain more resilient to downturns in individual industries.

In the first half of the year, revenue rose by 23.6% to €488 million. Organic growth was 5.6%, and comparable EBITA increased by nearly 28%. The second quarter was particularly strong: sales increased by more than 28%.

The company maintained its forecast for 2026: revenue is expected to range from €940 million to €1.06 billion, with EBITA of €64–78 million. The main drivers were new contracts in the Energy & Cleantech segment, the expansion of its presence in North America, and strong demand from the aerospace and defense industries.

The company’s capital allocation policy deserves special attention: Scanfil has increased its dividends for the 13th consecutive year—a rare achievement for a European industrial company of this size.

The main risks include the integration of recent acquisitions, rising debt following M&A transactions, and ongoing uncertainty in global supply chains. However, a combination of sustained profitability, a diversified business, and the long-term trend toward the restructuring of industrial production makes Scanfil one of the highest-quality second-tier companies in Europe.

Since the beginning of the year, Scanfil’s stock has risen 14%. The company’s stock has one “buy” recommendation; two other analysts are monitoring the company without assigning a rating. The average price target is €12.03, with upside potential of about 6% from the closing price on August 5.

The French company Vusion is perhaps the most underrated company in this selection in terms of public perception. Many investors still view it primarily as a manufacturer of electronic price tags. But Vusion develops a digital operating system for brick-and-mortar stores: electronic price tags, IoT sensors, software, analytics, and computer vision technologies.

The financial results show that the transformation is paying off. In the first half of 2026, consolidated revenue grew by approximately 33.5% to €820 million. The VAS (Value Added Solutions) segment, which includes software and digital services, is growing particularly rapidly: it posted growth of about 39%.

Vusion confirmed its full-year forecast: revenue growth of 15–20%, software business growth of approximately 40%, and further improvement in profitability. The key drivers are the large-scale implementation of the company’s solutions at Walmart stores in the U.S. and a long-term contract with Carrefour to digitize stores in France.

The main risk is the high-base effect. Following a record-breaking year, the pace of new orders has temporarily slowed. In addition, as its market capitalization grows, Vusion is gradually transitioning from the small-cap category to the lower end of the mid-cap segment, which could change how some investors view the stock.

Vusion's stock price has fallen 33% since the start of the year. The company's shares have six "buy" recommendations from analysts, with an average price target of €205. The upside potential is approximately 54% from the closing price on August 5.

This is not intended as individual investment advice.