Three structural forces have combined to create and entrench this mispricing. The first is the passive investing wave. Passive funds now account for approximately 62% of small-cap fund assets, up from 40% in 2014. Passive strategies cannot discriminate between a fairly priced company and one trading at 30 cents on the dollar of net asset value. Capital flows indiscriminately. The result is a systematic failure to correct prices that are obviously wrong.

The second force is the analyst coverage desert. While large-cap stocks are typically covered by an average of 16.4 sell-side analysts, small caps receive coverage from only about 5.7. For micro-cap companies below $300 million in market capitalisation, coverage thins further still, with nearly one-third covered by a single analyst or none at all. Markets are informationally efficient only where information flows. Where it does not, mispricing can persist indefinitely.

The third force is the M&A gap. Private equity firms in the U.S. alone sit on an estimated $1 trillion in dry powder. Yet that capital is systematically directed toward private businesses or larger public companies where deal economics justify the infrastructure costs of a major transaction. Sub-$300 million public companies fall below the minimum viable deal size for institutional capital. They are not overlooked because they are bad businesses. They are overlooked because the market has no systematic mechanism to unlock their value.