Undervalued Small Caps with Insider Buying: Hidden Gems in 2025

In the volatile landscape of 2025, small-cap stocks often fly under the radar of mainstream investors, yet they harbor unique opportunities for those who know where to look. A compelling indicator of potential undervaluation is insider buying, which signals management’s confidence in a company’s long-term prospects. This article examines six small-cap stocks—Capital Southwest, Herbalife, Ready Capital, Boozt, Pizu Group Holdings, and Chinasoft International—using insider transactions, financial metrics, and market positioning to identify hidden gems.

Capital Southwest (CSWC): A High-Yield Play with Strong Insider Confidence

Capital Southwest Corporation (CSWC), a business development company (BDC), has attracted attention with its 11.8% weighted average yield on debt investments and a 99% first-lien senior secured debt portfolio [2]. Despite a trailing twelve-month (TTM) P/E ratio of 13.65—30.85% above its 10-year average of 4.41—the stock trades at a discount to peers like Oxford Lane Capital Corp. (P/E of 31.98) [1].

Insider activity further bolsters its case. Director Christine Battist purchased 14,972 shares at $22.45 per share in August 2025, while other insiders added to their holdings in May and June [1]. These purchases suggest confidence in CSWC’s ability to generate returns, particularly as it maintains $1.8 billion in total investments and a $0.64 undistributed taxable income per share [2]. For income-focused investors, CSWC’s combination of high yields and insider alignment makes it a compelling candidate.

Herbalife (HLF): A Turnaround Story with Aggressive Insider Buying

Herbalife Ltd. (HLF) has emerged as a standout in the direct-selling sector, with a TTM P/E ratio of 3.09—a stark contrast to its 2024 average of 4.64 [4]. This compression reflects improved profitability: Q2 2025 net income surged to $49.3 million from $4.7 million year-over-year, even as sales dipped slightly to $1.26 billion [3].

Insiders have been equally bullish. Director Juan Mendoza executed multiple share purchases in 2025 at prices between $6.73 and $8.00 per share [2]. Such activity aligns with Herbalife’s strategic moves, including the launch of an AI-powered Pro2col app and new product lines targeting health-conscious consumers [5]. With insider confidence and a low P/E ratio, HLF appears undervalued relative to its growth trajectory.

Ready Capital (RC): A High-Risk, High-Reward BDC

Ready Capital Corporation (RC) operates in a challenging environment, reporting a TTM P/E ratio of -2.51 due to Q2 2025 losses of $0.31 per share [1]. However, insider buying—such as CEO Thomas Capasse’s $48,000 investment in March 2025—indicates optimism about its turnaround potential [2].

RC’s struggles stem from a transitioning portfolio and distressed assets, but its 1.10% insider ownership stake suggests alignment with shareholders [2]. While the company’s negative earnings make traditional valuation metrics less useful, its focus on commercial real estate lending and insider confidence warrant closer scrutiny for risk-tolerant investors.

Boozt (BOOZT.ST): E-Commerce Resilience in a Tough Market

Sweden’s Boozt AB has navigated a 3% revenue decline in Q2 2025—driven by currency headwinds and Danish market challenges—while doubling free cash flow to SEK 186 million [3]. Its TTM P/E ratio of 17.55 [1] appears reasonable given its 29% year-over-year profit growth and strategic AI initiatives to boost customer engagement [2].

Insider activity is mixed: Executive Mads Bruun Famme bought 4,000 shares at DKK 56.36–56.98, while CFO Sandra Gadd sold 13,771 shares [1]. However, Boozt’s SEK 109 million share buyback (out of a planned 300 million) underscores management’s belief in its intrinsic value [3]. For investors betting on e-commerce recovery, Boozt’s operational efficiency and digital transformation efforts are key positives.

Pizu Group Holdings (9893.HK): A Chinese Retail Play with Strong Fundamentals

Pizu Group Holdings reported a CNY 1.7 billion revenue increase for fiscal 2024–25, with net income rising to CNY 164 million [1]. While its P/E ratio is not explicitly stated, insider purchases by key figures in 2025 signal confidence in its retail and logistics model [1].

The company’s reliance on external borrowing introduces risk, but its 30% revenue growth and expanding profit margins suggest it is navigating China’s economic slowdown effectively. For investors with exposure to Asian markets, Pizu’s insider alignment and operational scalability merit consideration.

Chinasoft International (0354.HK): AI-Driven Growth with Insider Backing

Chinasoft International, a software and IT services firm, reported 7.3% revenue growth in H1 2025, with net income up 10% to CN¥315.6 million [5]. Its 10% insider ownership stake and 354 insiders buying more shares than sold in the past three months highlight management’s alignment with shareholders [3].

Strategic partnerships, such as its collaboration with Beijing SiliconFlow to enhance AI capabilities, position Chinasoft to capitalize on China’s digital transformation boom [2]. While specific Q1–Q3 2025 insider transactions remain opaque, the broader trend of insider buying reinforces its growth narrative.

Conclusion: Balancing Risk and Reward

The six companies profiled here share a common thread: insider buying as a proxy for management confidence. While metrics like low P/E ratios and strong financial performance further validate their cases, investors must weigh risks—such as RC’s losses or Boozt’s revenue decline—against long-term potential. For those willing to dig deeper, these small caps offer a mix of income, growth, and strategic innovation that could yield outsized returns in 2025.

Source:
[1] PE Ratio - Capital Southwest Corporation [https://www.wisesheets.io/pe-ratio/CSWC]
[2] Capital Southwest Announces Financial Results for First Fiscal Quarter Ended June 30, 2025 [https://ir.capitalsouthwest.com/news-releases/news-release-details/capital-southwest-announces-financial-results-first-fiscal-10]
[3] Boozt Q2 2025 slides: Revenue dips 3% as June shows recovery signs [https://www.investing.com/news/company-news/boozt-q2-2025-slides-revenue-dips-3-as-june-shows-recovery-signs-93CH-4194569]
[4] Herbalife Ltd PE Ratio (TTM) & PE Ratio (TTM) Charts - HLF [https://www.gurufocus.com/stock/HLF/data/pe-ratio]
[5] Chinasoft International First Half 2025 Earnings: EPS: CN¥ [https://simplywall.st/stocks/hk/software/hkg-354/chinasoft-international-shares/news/chinasoft-international-first-half-2025-earnings-eps-cn013-v]