Investments in small-caps in the Baltic States: companies and industries with growth prospects in 2026

The Baltic States - Lithuania, Latvia and Estonia - are emerging from a period of economic recession. According to the European Commission's forecast, the region is entering a phase of moderate growth, with a recovery in domestic demand becoming the key driver. Against this backdrop, Baltic companies, which are illiquid but stable in terms of fundamentals, can offer a risk premium in a segment that is still outside the focus of large investors and broad analytical coverage. According to Marius Varneckas, head of Freedom24 in Lithuania, this creates interesting entry points for investors for 2026.

Lithuania's economy - the largest in the region - is expected to grow by 2.7% in 2025 and 3% in 2026, according to the European Commission's estimate. Ma, after stagnating in 2024, is expected to accelerate: GDP is forecast to grow to 1.7% in 2026 after about 1% in 2025. Estonia, which has experienced the longest slowdown, is also showing signs of a turnaround: the European Commission expects GDP of around 2.1% in 2026.

The recovery of the Baltic economies is based on the growth of household incomes and consumer activity, revival of investments and expansion of exports. In Estonia, additional support is provided by improving conditions in Scandinavia, the key trade destination for the country. A common factor for the region is the rapid slowdown in inflation: after double-digit values in 2022, it is expected to approach the 2-3% range in 2026-2027. This means a recovery in real household income growth. Historically, such dynamics have been one of the main drivers of profit growth for small-capitalization companies, primarily in retail, industrial equipment and niche consumer categories.

Marius Varneckas has selected four small-caps in the Baltic region with growth potential on a 6-18 month horizon:

Latvian telecom equipment manufacturer SAF Tehnika is one of the few independent European manufacturers of microwave equipment for wireless data transmission. The company operates in the niche of solutions for telecom operators, government agencies and private networks. This is a complex technological segment that requires constant investment in development, a strong engineering team and state-of-the-art equipment.

In recent years, the company has faced a natural decline in industry demand, which has seen its quotations roughly halve to €6.6 - down from previous peaks of around €13-14. Nevertheless, recent reports suggest demand is turning the corner, with SAF's revenue up 50% year-on-year to €23.35m in the first half of fiscal 2025/2026 and net profit soaring more than threefold to €3.43m. Geography also confirms the recovery in demand, with sales in Europe up more than 2.5 times and the Asia, Africa and Middle East regions more than tripling.

Since the beginning of 2026, the company's shares have risen by about 45%. With the current P/E ratio (price-to-earnings ratio) of about 16.6, the market is essentially pricing in the company's continued stable growth. From a technical point of view, the nearest level of possible sales is in the range of €14-15, which corresponds to a growth potential of about 45% from current levels.* The main driver is the recovery of telecom operators' investments; among the main risks are cyclicality of orders and low liquidity.

Harju Elekter is an Estonian manufacturer of electrical distribution equipment and solutions for energy and industry. The main markets are Finland and Sweden, countries with high infrastructure investments. The company is a direct beneficiary of power grid modernization: the growth of data centers, electric vehicles and distributed generation requires an upgrade of electrical systems.

In the third quarter of 2025, Harju Elekter's revenues grew 4.5% year-on-year to €43 million, while net profit rose 70% to €2.9 million. The stock trades at a P/E ratio of 9.6. Whereas European electrical equipment manufacturers are valued at around 14-18, meaning that the market is not yet pricing in continued earnings growth for Harju Elekter.

Harju Elekter shares have risen by almost 18% since the beginning of the year. The nearest technical benchmark is around €6.7, which corresponds to a potential upside of about 18%.* Among the growth drivers are EU investments in energy infrastructure, while the main risks are related to the postponement of major projects and fluctuations in the cost of raw materials.

Madara, a Latvian manufacturer of natural cosmetics, entered the market even before the wave of the "naturalness" trend. The company has its own resources for research and development (Research & Development), produces certified products (ECOCERT, Cosmos), emphasizing bio-ingredients. Madara products are exported to more than 35 countries - a high level of international presence for the small-caps segment.

In the first half of 2025, revenue grew 9% year-on-year to around €11.37 million, with pre-tax profit of €284k compared to €4.6 million in the same period last year.

More important for valuation here is not the P/E ratio (around 23.8), but the P/S ratio (the ratio of the company's market capitalization to its annual revenue), which is now around 1.8 - a moderate level for an export consumer brand. Madara shares are up 14.5% YTD. The technical benchmark is around €14, which implies a potential upside of about 19%.* The main driver is the growth of the natural cosmetics segment, while risks include competition and marketing costs.

Apranga is the largest fashion retailer in the Baltics, operating franchises of Zara, Mango, Bershka and other international brands. The company operates more than 160 stores in the region.

Apranga Group retail turnover grew 5.7% year-on-year to €265.8 million in the third quarter of 2025, with improved online channels and logistics improving inventory turnover and cash flow.

The stock trades at a P/E ratio of around 13.2, while European retailers are valued in the 18-25 P/E range. The market actually rates Apranga as stagnant despite the recovery in consumption.

Since the beginning of the year, Apranga shares have risen by about 7%. The technical benchmark for the company's securities is €5, which implies a growth potential of about 36%.* The growth driver is the growth of real household incomes, potential risks are seasonality and sensitivity to consumption.

Baltic small-caps is a market with low liquidity, wide spreads and noticeable dependence on individual transactions. Even strong reporting is not always immediately reflected in the price: quotations can "stand still" for weeks and then move in a sharp jump - for example, when a big buyer or seller appears. Therefore, such securities require a longer investment horizon and a careful approach to position size.

In fact, the idea in Baltic small-caps is not a story about quick momentum, but about entering the right phase of the cycle. The region's economy is gradually recovering, company financials are improving, while valuations still largely reflect the weakness of previous years. As new reporting is released and investor interest returns, the market typically reassesses the value of these businesses step by step. On the 2026 horizon, the key return potential here is primarily due to revaluation - the point at which small companies are no longer perceived as purely local players and begin to be valued as sustainable regional businesses.

* Many companies that trade on Nasdaq Baltic do not have analyst coverage, so valuation benchmarks are generated by the market itself - through historical trading ranges on technical analysis and multiples returning to normal levels.