Investing in small-cap stocks isn't for the faint of heart. This asset classes has historically shown higher volatility than the broader market. However, picking the right small-cap stock -- and watching it appreciate in value over time -- can pay rich dividends down the road.
It isn't easy to identify small-cap stocks worth buying, but one that has been making a lot of noise all year is Catalyst Pharmaceuticals (NASDAQ: CPRX), and not always for the right reasons. Only a brave soul could deal with the sudden -- and sometimes completely unforeseen -- ups and downs the company has experienced recently. Of course, the hope is that Catalyst will eventually repay investors for their patience, but it is worth considering whether the company's prospects are worth the trouble in the first place.
Catalyst focuses on developing medicines for rare diseases, particularly those of the neuromuscular and neurological varieties. This strategy has its advantages; many therapies developed for rare conditions become the only game in town, which means pharma companies can profit from them for years. That is probably the future Catalyst envisioned when it launched its only FDA-approved drug, Firdapse, which treats patients with Lambert-Eaton myasthenic syndrome (LEMS). Firdapse became an instant success, helping Catalyst rack up revenues of $12.4 million during the first quarter -- despite only being launched in early January -- and shattering analyst estimates in the process.