Reporting season is just around the corner, and as we head into it, the team at RBC Capital Markets has made its call on the companies among the small-cap industrials they predict will outperform.
RBC actually has an outperform rating on 15 companies in this sector; however, today we'll focus on their two top picks, Life 360 Inc (ASX: 360) and Temple & Webster Group Ltd (ASX: TPW).
Shares out of favour
Life 360 shares have been on a steep slide since early October, when they traded for more than $55, compared with just $26.03 currently.
This was despite a third-quarter result in which RBC said they "beat expectations for all financial metrics'', with revenue coming in 3.8% above consensus, gross profit 2.3% above consensus, and EBITDA 30.5% above consensus.
RBC said there were areas of weakness, though.
The result disappointed expectations for monthly active user net adds (-39.5% vs consensus) and Paying Circle net adds (-6.9%). Management attributed the softer operational performance to: i) a marketing pivot to customers with a higher propensity to convert to paid and ii) a potential pull-forward of demand following a successful 2Q25 ad campaign.
RBC said monthly active user numbers will be a key focus for the fourth-quarter results, as will the performance of Nativo, which Life 360 recently acquired, and the new pet tracking device division.
RBC has a price target of $49 on Life 360 shares, which would be an 87.9% uplift from current levels.
Life 360 is scheduled to release its full-year results to the market on March 3.
Worst is over for this furniture retailer?
On to Temple & Webster, and RBC noted the company's November trading update, which showed total sales growth of 18% – a "considerable deceleration'' from the August update – and which led to a sharp sell-off in Temple & Webster shares.
RBC said:
Despite the weaker than expected update management commentary noted the business was 'on track' to meet its $1 billion medium term (FY26-FY28) sales target and reiterated guidance for FY26 EBITDA margins in the range of 3% – 5%.
RBC said investor expectations were "rebased" after the November update, and there were some positive signs from the sector generally.
Industry feedback and data points since then have suggested online retailers have outperformed during the key Black Friday/Cyber Monday and pre-Christmas selling periods, we believe Temple & Webster could be a beneficiary of this dynamic.
RBC has a $19 price target on Temple & Webster shares, representing a 47.3% gain if achieved.
