Royce PMs discuss four small-cap holdings 'for the long run'

Royce fund managers have named four small caps with promising long-term prospects. This year, their share prices have come under pressure, prompting Royce to increase its position in two of them.

Shares of Freshpet, a leader in the fresh and natural ingredient pet food category, have plummeted more than 61% year to date to $57.03 apiece. In early 2025, signs of a category growth slowdown from pet owner trade-downs from premium brands like Freshpet and consequent expectations of slower growth, resulted in a massive correction in the share price in the first half of 2025, points out Chip Skinner, portfolio manager of Royce Smaller-Companies Growth Fund. The management’s revenue growth targets became increasingly difficult to meet. 

For Royce, however, the momentum was a buy signal: Skinner's fund increased its position in Freshpet in August and is now looking for a bottoming of growth rate expectations before choosing to add to the stake further.

The company’s stock has 14 “buy” recommendations from Wall Street analysts, four “hold,” and only one “sell,” according to MarketWatch. The average target price of $86.47 per share implies upside of nearly 52% from current quotes.

Shares of building systems solution company Limbach are up 20.6% this year. Still, they remain prone to sharp swings: on August 6, the stock dropped more than 18% in a single day. The decline followed the release of quarterly earnings. Revenue rose 16% year over year to $142.2 million, still falling short of Wall Street expectations.

However, the management has shifted the business from being heavily commercial HVAC equipment and hardware focused to more of a recurring revenue HVAC services business, Skinner points out. "[This] brings with it the higher margins, recurring revenue streams, and growth re-acceleration that investors love seeing," he said. Limbach has a long runway of growth ahead, Royce believes, as it increases its presence in current markets while also acquiring other service-oriented providers.

The company’s stock has four ratings from Wall Street analysts, all of them “buy.” The average target price of $137.25 per share is almost 31% above the September 9 closing price of $105.00 per share.

Shares of Academy Sports & Outdoors, the second-largest sporting goods retailer in the U.S., have fallen more than 15% year to date to $48.76 per share. The The decline during the first half of 2025 was related largely to tariff announcements – as Academy sources some product from China, while most of its suppliers source from China, Vietnam, and other countries in Southeast Asia – their potential impact on Academy’s customers, and the consequent effect on the company’s fundamentals, says Miles Lewis, lead portfolio manager of two Royce funds, the Royce Small-Cap Total Return Fund and Royce SMid-Cap Total Return Fund.

Still, Academy is working to boost same-store sales: for example, it recently launched the popular Jordan brand across many locations, with more to come in the future. Its shares have been rebounding more or less steadily off the market’s early April lows, Miles points out.

Wall Street is divided  on the stock's outlook: 11 analysts recommend holding it, while 10 advise buying. The average target price of $57.89 per share implies upside of almost 19%.

Shares of Kyndryl Holdings, a provider of IT infrastructure services to banks, airlines, and retailers, are off just over 4% since the beginning of the year. The steepest decline, of more than 21%, came on August 5, following the company’s report of an “unexpected decline in revenue” of about 2.6% to $3.74 billion in the first fiscal quarter of the year.

This revenue decline was the result of an extended review process by eight customers rather than macro/geopolitical uncertainty, heightened competition, or customer churn, Lewis says. Based on its strong pipeline, the management expects to make up the lost ground over the next three quarters and reaffirmed its full-year fiscal-2026 guidance. "We saw the decline as an overreaction to a temporary setback and added to our position at what we deemed were advantageous prices," Lewis concludes.

Six Wall Street analysts rate the company’s stock a "buy," with no other ratings. The average target price of $46.25 per share implies upside of nearly 40% from the September 9 closing price of $33.12 per share.

The AI translation of this story was reviewed by a human editor.