These 10 High-Quality Small-Caps Could Double (or More) in 2026
Any serious quality investor looking for out-performance should have these on his/her list.
“The universe I can’t play in has become more attractive than the universe I can play in. I have to look for elephants. It may be that the elephants are not as attractive as the mosquitoes.’’—Warren Buffett
Warren Buffett has told us, retail investors, that mosquitoes, small-cap stocks, are where fortunes are made.
Warren Buffett and many other prominent investors are forced to invest in larger companies. Why? Because they have large capital sums to deploy. Small-cap stocks are often too illiquid to handle this.
Imagine a fund of $10B, allocating 3% ($300M) to a stock with a market cap of $300M to $600M?
Moreover, regulations are often significant hurdles.
Do you see your advantage here yet? I do. You can start fishing where the big players cannot fish, yet.
Scale your position while the big capital is forced to wait
Get on board before the big capital does
Exploit inefficiently priced small companies
Here are 10 of high-quality small-caps that the larger player cannot yet invest in, yet Warren Buffett would love them.
10. Goosehead Insurance, Inc. (Ticker: $GSHD)
Goosehead Insurance is attacking one of the most outdated industries in financial services: personal insurance distribution.
The traditional insurance agency model is fragmented, local, and highly inefficient
Many agents represent only one carrier, limiting customer choice
Technology adoption across the industry remains surprisingly low
Goosehead flips this model:
Independent agency with access to 150+ insurance carriers
Centralized service platform powered by modern technology
Franchise model that scales nationally without heavy capital investment
Instead of selling insurance products, Goosehead sells choice, efficiency, and better service.
That combination is disrupting an enormous market.
Platform economics are replacing traditional insurance agencies.
The company separates sales from servicing, which changes the economics of the entire model.
Franchisees focus purely on acquiring customers and writing policies
Goosehead’s corporate platform handles service, quoting, renewals, and support
Technology automates many processes that traditional agencies still perform manually
This creates powerful advantages:
Higher productivity per agent
Lower operating costs
Faster policy quoting and binding
The result is a platform where every new policy improves the economics of the network.
Recurring revenue engine hiding inside insurance distribution.
Insurance is naturally recurring, but Goosehead monetizes it in a particularly attractive way.
Earns commissions on initial policies
Continues earning renewal commissions every year
Retention rates are typically around 90%+
Over time, this creates a growing base of predictable revenue:
Each new customer becomes a long-duration cash flow stream
Renewal commissions compound as the book grows
Margins expand as servicing is centralized
In other words, Goosehead builds a compounding annuity-like revenue base.
Asset-light franchise model enabling rapid national expansion.
The company scales primarily through franchises rather than building thousands of corporate offices.
Advantages of this model:
Franchise owners provide the capital to open agencies
Local entrepreneurs drive sales and customer acquisition
Goosehead collects ongoing royalties and commissions
This creates a powerful growth flywheel:
High incremental returns on capital
Rapid geographic expansion
Scalable national footprint
It is similar to how the best franchise systems expand quickly without heavy balance sheet risk.
Technology moat in a slow-moving industry.
Insurance distribution has historically lagged in technology adoption.
Goosehead built a modern digital infrastructure from the ground up:
A proprietary quoting platform that compares multiple carriers instantly
Automated workflows for servicing policies
Data systems that improve underwriting and pricing visibility
As the network grows:
More agents feed more data into the system
Carrier relationships deepen
The platform becomes harder to replicate
Long runway in a $300B+ market still dominated by local agents.
The personal lines insurance market in the U.S. is enormous.
Yet distribution remains extremely fragmented:
Tens of thousands of small independent agencies
Many are run by aging owners nearing retirement
Limited technology and poor scalability
This creates a clear consolidation opportunity.
Goosehead’s model positions it to capture share through:
Franchise expansion
Superior technology
Multi-carrier product selection
Operating leverage that could accelerate earnings growth.
The real financial power appears as the company scales.
Once the servicing platform is built:
Incremental policies require minimal additional cost
Renewal commissions grow every year
Margins expand as the customer base compounds
This creates a powerful dynamic:
Revenue grows steadily
Costs scale more slowly than the policy base
Earnings can grow much faster than sales
Founder-led culture with strong incentives.
Founder and CEO Mark E. Jones still leads the company.
Key cultural traits:
Strong focus on agent productivity and customer experience
Aggressive long-term growth mindset
Incentive structure aligned with expanding the franchise network
Founder-led businesses often maintain stronger strategic discipline as they scale.
Why Goosehead could outperform in 2026.
Several factors could drive outsized performance:
Continued rapid franchise expansion across the U.S.
Compounding renewal commission revenue from existing policies
Operating leverage as the servicing platform scales
Increasing share gains in a fragmented market
Goosehead is turning insurance distribution into a technology-enabled, asset-light compounding machine inside a massive and inefficient industry.
9. MFF Capital Investments Limited (Ticker: $MFF)
MFF Capital Investments Limited operates a structure designed to compound capital steadily over long periods.
Unlike traditional funds that face constant inflows and outflows:
MFF is a listed investment company (LIC) with permanent capital
The manager can invest with a long-term horizon
No forced selling due to redemptions during market volatility
This structure allows the portfolio to focus purely on long-term compounding rather than short-term fund flows.
Portfolio concentrated in global quality compounders.
MFF primarily invests in large, durable global businesses.
Typical characteristics of its holdings:
Dominant market positions
Strong balance sheets and pricing power
High returns on capital
Historically, the portfolio has included companies such as:
Microsoft
Visa
Alphabet
Mastercard
These businesses generate durable cash flows and benefit from long-term secular trends.
By owning them for extended periods, MFF captures the full power of compounding.
Founder-led investment discipline.
MFF is led by founder and CIO Chris Mackay.
Mackay previously worked closely with legendary investor Kerr Neilson, shaping his long-term investment philosophy.
The strategy focuses on:
Buying exceptional businesses at reasonable prices
Holding them for many years
Avoiding unnecessary trading or speculation
This disciplined approach prioritizes capital preservation first, compounding second.
Structural advantages of the listed investment company model.
The LIC structure provides several key benefits.
Because MFF is permanently listed on the stock exchange:
Investors trade shares with each other rather than redeeming from the fund
The portfolio manager never has to sell holdings to meet withdrawals
The investment strategy can remain stable through market cycles
This stability is particularly valuable during:
Market downturns
Liquidity shocks
Periods of heightened volatility
In practice, it allows MFF to behave more like a long-term investment partnership than a typical fund.
Conservative balance sheet with tactical flexibility.
MFF maintains a flexible capital structure.
Key characteristics include:
Moderate use of leverage when opportunities arise
Ability to hold cash during expensive market conditions
Capacity to increase exposure during market sell-offs
This flexibility can enhance returns by allowing the firm to deploy capital opportunistically when valuations become attractive.
Access to global opportunities from an Australian vehicle.
While listed in Australia, MFF’s opportunity set is global.
The portfolio focuses primarily on:
North American market leaders
European quality businesses
Global platforms benefiting from structural growth
This allows investors to gain exposure to world-class companies through a single Australian-listed vehicle.
Compounding driven by underlying business growth.
Unlike many investment vehicles that rely on trading gains:
MFF’s returns primarily come from the underlying growth of its portfolio companies.
As those companies expand earnings and cash flow:
Share prices tend to follow over time
Dividends can grow steadily
Portfolio value compounds organically
The strategy focuses on letting great businesses do most of the work.
Why MFF Capital Investments could outperform in 2026.
Several dynamics could support strong performance:
Continued compounding from high-quality global businesses
Tactical capital deployment during market volatility
Structural advantages from the permanent capital LIC model
Long-term discipline under an experienced founder-investor
MFF Capital Investments offers investors a patient, quality-focused global portfolio designed to capture the long-term compounding power of the world’s strongest businesses.
8. Lovisa Holdings Limited (Ticker: $LOV)
Lovisa Holdings Limited operates in a surprisingly attractive corner of retail: fast-fashion jewelry.
Unlike traditional jewelers, Lovisa focuses on:
Trend-driven, affordable accessories
Rapid product turnover aligned with fashion cycles
High-margin impulse purchases
The model resembles fast-fashion apparel leaders but is applied to accessories.
That niche creates powerful advantages:
Very low price points
High volume sales
Constant product refresh
In short, Lovisa sells fashion velocity, not jewelry.
Fast-fashion supply chain built for speed and margins.
Lovisa’s product engine is optimized for rapid trend response.
Key advantages include:
In-house design teams tracking global fashion trends
Quick development cycles from concept to store shelves
Tight SKU control to avoid excess inventory
Most items sell for $10–$30, but production costs are extremely low.
This leads to:
Gross margins often above 75%
Limited inventory risk due to fast turnover
Strong profitability even at small basket sizes
The result is a retail model that generates luxury-level margins at mass-market prices.
Store economics that scale globally.
Lovisa stores are small, simple, and inexpensive to operate.
Typical characteristics:
Small footprints inside high-traffic malls
Minimal build-out costs compared to apparel stores
High sales per square meter due to dense product displays
Because jewelry is small and lightweight:
Inventory costs remain manageable
Logistics are efficient
Stores can be replenished quickly
This creates a retail concept that is easy to replicate across countries.
International expansion runway still wide open.
Lovisa’s growth story is heavily driven by global expansion.
The company already operates across:
Australia and New Zealand
Europe and the UK
North America
Asia and the Middle East
Yet penetration remains low relative to opportunity.
The expansion playbook is straightforward:
Open clusters of stores in major shopping centers
Build brand awareness among younger consumers
Use strong unit economics to fund further expansion
This creates a long runway for hundreds of additional stores worldwide.
Impulse purchase dynamics drive resilient demand.
Lovisa benefits from a powerful retail behavior: impulse buying.
Unlike expensive jewelry purchases:
Customers rarely plan Lovisa purchases in advance
Low prices make buying multiple items easy
Trend-driven styles encourage repeat visits
That dynamic leads to:
High purchase frequency
Strong inventory turnover
Consistent traffic in busy malls
The brand thrives on small purchases repeated often.
Vertically integrated model protects margins.
Lovisa controls much of its value chain.
Key elements include:
In-house design and product development
Direct sourcing relationships with manufacturers
Centralized merchandising and pricing strategy
This structure allows Lovisa to:
React quickly to fashion trends
Maintain strong gross margins
Keep retail prices low while protecting profitability
It functions more like a fast-fashion operator than a traditional jewelry retailer.
Operating leverage as the global footprint expands.
Retail often struggles with scale, but Lovisa benefits from it.
As the store network grows:
Purchasing scale improves sourcing costs
Design and merchandising costs are spread across more stores
Brand awareness strengthens organically
At the same time:
Each store remains simple to operate
Capital requirements stay relatively low
This combination enables high returns on invested capital even during aggressive expansion.
Why Lovisa could outperform in 2026.
Several structural drivers could push performance higher:
Continued rapid international store expansion
Industry-leading gross margins above 75%
Strong unit economics per store
Increasing brand awareness among Gen Z consumers
Lovisa has built a fast-fashion accessories powerhouse with luxury-level margins, global scalability, and a retail model designed for rapid expansion.
7. Betsson AB (publ) (Ticker: $BETS.B)
Betsson AB operates one of Europe’s most profitable online gambling platforms.
The company focuses entirely on digital gaming, including:
Online sports betting
Online casinos
Poker and other gaming products
Unlike traditional casino operators tied to physical locations, Betsson runs a pure online model.
This structure enables:
Global reach across multiple regulated markets
Scalable technology platforms
Lower operating costs than land-based competitors
In short, Betsson participates directly in the structural shift from offline gambling to online platforms.
Multi-brand strategy capturing diverse player segments.
Betsson operates a portfolio of well-known gaming brands.
Key brands include:
Betsson
NordicBet
Betsafe
Each brand targets slightly different audiences:
Regional markets
Different customer preferences
Various marketing strategies
This multi-brand approach allows Betsson to capture a broader share of online gambling demand across multiple demographics and geographies.
Technology platform driving scalability and margins.
At the core of Betsson’s model is its proprietary technology platform.
The platform supports:
Sportsbook operations
Casino game integrations
Payment systems
Risk management and odds setting
Because the infrastructure is centralized:
New markets can be added relatively quickly
Incremental players generate high-margin revenue
Operating leverage improves as volume grows
This creates a software-like scalability profile inside the gambling industry.
Exposure to regulated market expansion.
The global online gambling market is undergoing steady regulation.
More countries are moving from:
Unregulated or gray markets
Toward licensed, tax-paying online operators
This shift benefits established companies like Betsson that already operate under strict regulatory frameworks.
The company continues expanding into regulated markets across:
Europe
Latin America
Select emerging jurisdictions
As regulation spreads, larger operators often gain share due to:
Compliance expertise
technology capabilities
marketing scale
High-margin digital business model.
Online gambling is structurally attractive when operated efficiently.
Betsson benefits from:
Strong gross margins due to digital delivery
Low marginal cost per additional player
High lifetime value from loyal customers
Sports betting drives customer acquisition, while online casinos typically deliver the highest profitability.
This combination produces a powerful revenue mix:
Recurring gameplay
Frequent player engagement
Strong operating margins
Geographic diversification reducing risk.
Unlike many operators concentrated in a single country, Betsson maintains a diversified footprint.
The company generates revenue across multiple regions, including:
Nordic markets
Western and Central Europe
Latin America
This diversification provides several benefits:
Reduced exposure to regulatory changes in any single market
Access to faster-growing emerging regions
Balanced revenue streams across jurisdictions
Disciplined capital allocation and shareholder returns.
Betsson has historically balanced growth investments with shareholder returns.
Capital allocation priorities include:
Expanding into new regulated markets
Continued investment in technology and product offerings
Regular dividends to shareholders
This approach supports both long-term growth and consistent shareholder returns.
Why Betsson could outperform in 2026.
Several structural drivers could support stronger performance:
Continued global shift toward online gambling
Expansion into newly regulated markets
Operating leverage from a scalable technology platform
Strong brand portfolio attracting and retaining players
Betsson combines the economics of a digital platform business with exposure to a global gambling market that is steadily migrating online.
6. Software Circle plc (Ticker: $SFT)
Software Circle Plc follows a strategy increasingly proven to create long-term compounders: acquiring niche vertical software businesses with sticky customers.
Rather than building software from scratch, Software Circle focuses on:
Established niche software companies
Mission-critical products used in daily business operations
Recurring revenue streams with loyal customer bases
Many of these companies serve specific professional niches such as:
Accountancy practices
compliance-heavy industries
regulated professional services
Once embedded in workflows, these systems become extremely difficult to replace.
That stickiness creates durable revenue streams and strong retention.
Buy-and-build strategy targeting fragmented software niches.
The vertical software landscape is highly fragmented.
Across Europe there are thousands of small software companies that:
Serve narrow professional markets
Generate stable recurring revenue
Often remain founder-owned for decades
Software Circle acts as a long-term home for these businesses.
Its acquisition strategy focuses on companies that have:
Strong customer retention
mission-critical functionality
opportunities for operational improvement
By consolidating these niche players, Software Circle gradually builds a portfolio of specialized software assets.
Recurring revenue at the core of the model.
Vertical market software businesses often generate highly predictable revenue.
Typical characteristics include:
Subscription-based licensing models
long-term customer relationships
high switching costs due to workflow integration
Once customers adopt the software:
training costs increase switching friction
operational processes become dependent on the platform
renewal rates remain high
This results in stable recurring revenue streams that compound over time.
Operational improvement after acquisition.
Beyond acquisitions, Software Circle focuses on improving the businesses it acquires.
Typical value creation includes:
transitioning legacy licensing models toward SaaS subscriptions
improving pricing strategies
investing in product development and customer support
Many founder-led software businesses underinvest in growth prior to acquisition.
Under a larger platform, these companies can:
scale more efficiently
expand their customer base
increase margins
Permanent capital enabling long-term consolidation.
As a listed company, Software Circle has access to capital markets to support acquisitions.
This structure allows the firm to:
pursue multiple acquisitions over time
reinvest operating cash flows into further deals
gradually scale its software portfolio
The buy-and-build strategy becomes increasingly powerful as:
acquisition experience improves
industry relationships deepen
the platform gains credibility among founders looking to exit
Sticky customers with pricing power.
Vertical market software often benefits from quiet pricing power.
Customers rely on these platforms for essential operations such as:
regulatory compliance
accounting workflows
operational reporting
Because switching systems can disrupt business operations:
churn tends to remain low
modest price increases are often accepted
long-term revenue visibility improves
This dynamic supports stable margins and predictable growth.
Operating leverage as the portfolio scales.
As the number of software businesses within the group increases:
Shared services can reduce overhead
Development resources can be allocated more efficiently
Best practices can be applied across the portfolio
Over time, this can improve:
operating margins
product quality
cross-business collaboration
The model gradually evolves into a platform of niche software assets rather than a collection of standalone companies.
Why Software Circle could outperform in 2026.
Several structural factors support long-term upside:
Large pipeline of fragmented vertical software acquisition targets
High recurring revenue and customer retention
Margin expansion through operational improvements
Increasing scale from a buy-and-build consolidation strategy
Software Circle is executing a vertical software roll-up strategy in a market filled with small, sticky software businesses that can compound value under a disciplined long-term owner.
Now diving into my top 5 highest-quality small-caps, undervalued picks with serious upside potential (one has already doubled returns in under 2 years while beating market dips).
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