Although 2022 was a tough year for stocks of all sizes, small-cap stocks were hit hardest, with the Russell 2000 falling 21.6% for the year. Generally speaking, small caps’ underlying businesses do not have the footprint of larger entities, making them more vulnerable during economic slowdowns. However, because they’re small and typically underappreciated, when momentum reverses to the upside, cheap small-cap stocks can deliver explosive returns.

Another factor that sets cheap small-cap stocks apart from their mid-to-large-capitalization counterparts is the comparative lack of hedge fund involvement. While institutional players can drive up valuations, going with smaller enterprises enables regular folks to acquire shares before the smart-money wave. In other words, you may enjoy some additional time to build a sizable position.

Of course, lesser-known public companies will almost always carry more risk than established businesses. Still, if you want to maximize your growth potential in 2023, these cheap small-cap stocks to buy could be your ticket.

Cheap Small-Cap Stocks: Caledonia Mining (CMCL)

Caledonia Mining (NYSEAMERICAN:CMCL) is a “profitable cash generative gold producer with a strong growth profile,” per its website, with a market cap of $181.6 million. Its primary asset is the Blanket Mine in Zimbabwe.

In the trailing year, CMCL gained more than 25%. For context, the benchmark S&P 500 index lost nearly 17% during the same period. And shares are off to a strong start in 2023, rallying 14%. This is likely due to the “fear trade,” or investors pivoting toward the safety of assets carrying intrinsic value.

To be upfront, gold-related enterprises carry high risks. With the Federal Reserve failing to contain inflation via rate hikes, the gloves could come off. While some believe higher interest rates have a negative impact on gold prices, the specter of a global recession may just spook investors into gold plays like CMCL.

Best of all, despite the recent upside momentum, shares remain discounted. CMCL is trading at just 6.1 times trailing earnings, well below the sector median of 12.1.

Crown Crafts (CRWS)

Based in Louisiana, Crown Crafts (NASDAQ:CRWS) designs, markets and distributes infant, toddler and juvenile consumer products. It currently has a market cap of $55.9 million. In the trailing year, CRWS lost 24% of its equity value. However, shares have rallied about 8% since hitting a 52-week low in late December.

Could Crown Crafts be in for a comeback in 2023? It’s possible. One bullish sign is the fact that the stock is seeing budding hedge fund demand. What’s more, the company offers robust financials.

For starters, it enjoys a strong balance sheet, characterized by a higher-than-average equity-to-asset ratio of 0.8. That’s better than 86% of its peers. Also, it commands outstanding operating and net margins of 12.1% and 10.1%, respectively, beating out 80% of its peers in both categories.

Shares look undervalued, trading at 6.7 times trailing earnings, below 85% of the competition.

Cheap Small-Cap Stocks: P.A.M. Transportation Services (PTSI)

One of the riskier names among cheap small-cap stocks to buy, Arkansas-based P.A.M. Transportation Services (NASDAQ:PTSI) is an irregular route over-the-road trucking company with a market cap of $570.4 million. Although relevant, the sector faces significant challenges, particularly with recession concerns and driver shortages and retention.

Nevertheless, GuruFocus rates PTSI as “modestly undervalued” based on its proprietary calculation for fair market value. More importantly, the investment resource notes that P.A.M. features nine good signs with no red (or yellow) flags. That’s a rarity, especially in the current environment. In particular, the company enjoys consistent growth on a revenue-per-share basis and stability in the balance sheet.

PTSI is trading at 5.8 times trailing earnings, well below the sector median of 12.6. Additionally, shares trade at 0.6 times sales. For comparison, the median price-to-sales ratio for its industry pings at just below 1.

Intrepid Potash (IPI)

Based in Denver, Intrepid Potash (NYSE:IPI) is a fertilizer manufacturer with a market cap of $416.9 million. The company is a leading producer of potassium chloride, also known as muriate of potash, in the United States.

To be blunt, IPI carries significant risk, even compared to other cheap small-cap stocks on this list. Shares have lost 27% over the past year. However, IPI is up 13.5% since hitting a 52-week low last week.

According to the International Monetary Fund, Russia’s invasion of Ukraine has caused the worst global food crisis since 2008. Cynically, disruptions in the food supply bode well for fertilizer companies like Intrepid, as they increase the need for higher crop yields.

IPI is trading for 5.1 times forward earnings, below the sector median of 5.7. Also, it’s priced at 0.6 times book value, which is better than 94% of the competition.

Cheap Small-Cap Stocks: Envela (ELA)

One of the more intriguing ideas among cheap small-cap stocks to buy before a breakout is Envela (NYSEAMERICAN:ELA), which bills itself as a re-commerce company. Per its website, “Re-commerce or reverse commerce is the process of reselling previously-owned products as whole goods, or recycling items’ components/materials for reuse.”

Further, the company states re-commerce represents the “foundation of the circular economy — an economic system aimed at eliminating waste and driving the continued reuse of existing resources.” This makes Envela a play on the environmental, social and governance investing movement.

Aside from the feel-good narrative, ELA brings an objectively cheap profile to the table. Share trades at 11.9 times trailing earnings. In contrast, the sector median stands at 15.1.

Also, it’s worth noting that Envela enjoys a stable balance sheet, especially with an Altman Z-Score of 6.7. This reflects very low bankruptcy risk over the next two years. As well, the company’s return on equity stands at a whopping 40.8%, reflecting superior capacity to convert equity financing into profits. Thus, it’s a solid idea for cheap small-cap stocks to buy.

Zumiez (ZUMZ)

An American multinational specialty clothing store, Zumiez (NASDAQ:ZUMZ) provides apparel, footwear, accessories and hard goods for young men and women.  The Washington-based company has a market cap of $458.8 million. In the trailing year, ZUMZ has lost 49%. However, shares are up 25% since bottoming on Dec. 20.

With inflation hurting consumer sentiment and cutting into people’s discretionary budgets, trading could be bumpy for some time. However, Zumiez has been around since 1978, meaning it has successfully weathered past recessions.

Financially, the company offers above-average rankings for longer-term revenue growth and operating and net margins. Also, the company has a decent (though not great) balance sheet, with an above-average equity-to-asset ratio of 0.5.

ZUMZ may attract bargain-hunting gamblers. Shares trade at 10.7 times trailing earnings and 0.5 times sales, which is better than 68.5% and 62% of its peers in the retail industry, respectively.

Cheap Small-Cap Stocks: CEVA (CEVA)

Headquartered in Rockville, Maryland, CEVA (NASDAQ:CEVA) plies its trade in the semiconductor industry. Specifically, the company licenses signal processing platforms, AI processors, sensor fusion software and modules, and offers chip design services to chip manufacturers and original equipment manufacturers. Presently, CEVA has a market cap of $639.7 million.

CEVA was decimated along with other semiconductor stocks in 2022, falling more than 40%. But since bottoming in mid-October, shares are up 16% as investor sentiment in the sector has brightened.

According to GuruFocus, CEVA is “significantly undervalued” based on its proprietary calculation. Additionally, shares have a price-to-net-cash ratio of 6.8. This stat compares favorably to the sector median of 9.8.

Most prominently, the company enjoys a stout balance sheet. For example, its cash-to-debt ratio stands at a meteoric 19 times, higher than 76% of its peers. Conversely, its debt-to-equity ratio sits at a lowly 0.03 times, better than 85% of the industry.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.