With small-cap stocks - as benchmarked by the Russell 2000 Index (RUT) - lagging large-caps by an unusually wide margin, some analysts are now saying it's time for this performance gap to correct in favor of the little guy. But the big question for investors is, which small-cap underperformers have the strongest upside potential? 

Two small-cap names that have almost nowhere to go but up are Stitch Fix (SFIX), the online personal styling service, and The RealReal (REAL), the digital luxury consignment marketplace. Both stocks trade under $5 per share, well below their all-time highs.

But which of these low-priced small-caps is more likely to make a run higher in 2024? Here's what Wall Street is saying.

Small-Cap Stock #1: Stitch Fix

Stitch Fix is an online personal styling service that offers personalized fashion solutions for men and women. The company leverages a combination of data science and human judgment to deliver apparel, shoes, and accessories that are tailored to their clients' unique tastes, lifestyles, and budgets. 

After catching a major pandemic-era boost, it's been mostly downhill for SFIX since its February 2021 all-time highs north of $95. The stock is down 96% from that peak, and 26.7% over the past 52 weeks.

In its latest quarterly results, Stitch Fix beat EPS expectations with a narrower-than-expected loss of $0.22 per share, even as revenue from continuing operations dropped 18% year-over-year to $364.8 million. 

Active client counts and revenue per customer have both headed lower over the past year, but management has a strategy to reverse course. They aim to boost client experiences through advanced technologies like Generative AI styling. Meanwhile, optimizing brand assortments and targeting high-lifetime-value customers could drive revenue and margin expansion over time. 

Also, Stitch Fix is working to optimize key retail operations like merchandising, pricing, shipping, and warehouse management. By refining these core functions, Stitch Fix hopes to increase efficiency, improve profit margins, and ensure products are available to meet client demand on time.

Moving forward, management backed its guidance calling for a revenue decline of 14-18% in fiscal 2024, which ends in July. And looking ahead, the loss per share is expected to narrow from $0.86 to $0.68 year-over-year in fiscal 2024. Stitch Fix expects to deliver a positive adjusted EBITDA margin of 1-2% over the same period, signaling a path to profitability. 

Most analysts maintain a cautious view on SFIX. Of 15 total analysts, 13 rate the stock a “Hold” and 2 label it a “Strong Sell.” However, the mean price target of $3.76 still implies a nearly 16% upside from current levels. 

Small-Cap Stock #2: The RealReal

The RealReal is an online marketplace for authenticated luxury consignment goods across categories like women's, men's, kids, jewelry, watches, home, and art. They sell pre-owned designer items from top brands like Chanel, Louboutin, Gucci, and Hermes, among many others. 

REAL has gained 27% over the past 52 weeks to outperform SFIX by a substantial margin - but, like its peer, REAL peaked back in February 2021, and the shares have shed a staggering 93% since then.

In its most recent quarterly earnings, The RealReal posted a smaller-than-expected loss of $0.15 per share - beating consensus estimates by $0.11. Gross merchandise value also increased 4% year-over-year to $444 million. Total revenue of $133.2 million also topped estimates.

Unlike SFIX, The RealReal is expected to report revenue growth in fiscal year 2024, which ends this December. Analysts are expecting full-year revenue to rise 6.85% to $585.18 million for the full year.

The consensus opinion on REAL is newly optimistic, with the stock now boasting an average “Moderate Buy” rating - up from “Hold” one month ago. Although 7 analysts still rate REAL a “Hold,” 2 now recommend a “Strong Buy” and 1 suggests a “Moderate Buy.” 

The average price target stands at $3.07 - representing a massive upside potential of around 50% from current levels. 

Which Small-Cap Stock Has More Upside Potential?

The bottom line is that while both Stitch Fix (SFIX) and The RealReal (REAL) seem positioned to improve their footing in 2024, Wall Street sees more near-term upside potential in The RealReal. While both stocks are priced at a steep discount to their 2021 all-time highs, analysts are targeting more robust revenue growth from REAL, and have more optimistic forecasts for the share price, as well. And at just 0.37 times forward sales, REAL is not only low-priced - it's also cheap, based on future sales estimates.