April is a month when a lot of investors are looking for ideas for the fresh £20,000 Stocks and Shares ISA allowance. And with the on-off Iran war causing massive volatility on a daily basis, there are no shortage of investing opportunities.
One of the biggest causalities of the Middle East conflict — due to the spectre of higher interest rates — has been the small-cap sector. Many shares here have dropped 20% or more year to date.
Here are a pair of falling small-cap stocks that are worth checking out.
Burgeoning social travel platform
Hostelworld (LSE:HSW) is an online booking platform showing hostels and budget hotels. Naturally, this makes it very popular with young and solo travellers.
The stock has fallen 20% year to date and 40% over two years, resulting in a £125m market cap.
Now, the obvious near-term risk here is a spike in inflation. This could put pressure on discretionary spending, leading to less travel and fewer bookings. Meanwhile, restricted Middle East airspace isn’t ideal for global travel.
However, what I think is underappreciated about Hostelworld is that it’s quietly turning into a social network. Travellers who book on its platform get to message and interact with others staying in the same hostel, as well as plan and book meet-up events.
Not only does this differentiate Hostelworld from larger rival Booking, it’s also driving more repeat business and deeper loyalty among users. It also has the potential to reduce marketing costs in future as more travellers book directly through the app rather than via a Google search.
Hostelworld ended 2025 with over 3.4m social members. Since launch in 2022, they have sent 16m chat messages and booked 17m times. So this is really starting to catch on.
Looking ahead, this network could become much larger because the platform is opening up social features to non-Hostelworld travellers (for a fee). As this scales in future, there could be loads of monetisation potential.
The most attractive thing here is the ultra-cheap valuation, with the stock trading at 8.4 times this year’s forecast earnings. In 2027, this drops to just 6.8, as net income is forecast to surge around 170% between 2025 and then.
That’s not all. The company has started paying a dividend (which it cancelled during the pandemic), and the forward dividend yield is 3.5%.
Finally, City analysts see a lot of value here. The average price target among six brokers is 183p — around 83% higher than the current price!
Fast-growing payments network
The second cheap small-cap stock is smartphone payments facilitator Boku (LSE:BOKU). The £517m fintch has plummeted 29% since October.
Yet the company, which calls itself the “payment network trusted by tech giants“, is growing nicely. And its network now reaches 300+ payment methods worldwide, enabling merchants to transact with unbanked mobile users.
Last year, revenue increased 30% to $128.8m, while adjusted EBITDA jumped 36% to $41.3m. Looking ahead, management is guiding for 20%+ growth over the medium term, as local payments through smartphones rocket across Southeast Asia and Latin America.
Again, the main risk here is a global economic downturn, sparked by surging energy costs. This could see a slowdown in payment volumes.
However, the stock’s trading at 16.7 times 2027’s forecast earnings. That looks cheap for an increasingly profitable high-growth company.
