Conestoga Capital Advisors, an asset management firm known for its focus on small-cap equities, recently published its investor letter for the third quarter of 2026. The letter provides a comprehensive overview of the current macroeconomic environment and its impact on small-cap stocks. The beginning of 2026 was marked by strong performance, but the third quarter presented several challenges. Key factors included a rise in oil prices, persistent inflation, and a Federal Reserve interest rate hike in September. These elements contributed to a 9.4% decline in the Russell 2000 Growth Index over the quarter. In contrast, the S&P 500 Index saw a modest gain of 2.3% during the same period. Despite these hurdles, small-cap stocks have managed a 10.7% increase year-to-date, although they still trail behind large-cap stocks, which have climbed by 12.7%.
As the market transitions towards prioritizing higher-quality growth, the current short-term volatility is expected to offer compelling opportunities for investors who are disciplined in their stock selection. Conestoga’s Micro Cap Composite demonstrated strong relative performance in the third quarter, recording a slight decline of 0.83% net, compared to a significant 12.15% drop in the benchmark. This performance brought the year-to-date returns to 12.50%, outperforming the index’s 8.50% gain. The firm’s success was largely driven by effective stock selection in the Health Care and Technology sectors, with software holdings notably increasing by 16.8%. This growth helped counterbalance the challenges faced in consumer-focused positions. The strategy is optimistic about the operational strength of its portfolio companies as it moves into the fourth quarter.
Within this context, Conestoga Capital Advisors highlighted Twist Bioscience Corporation (NASDAQ:TWST) as a positive contributor during the quarter. Twist Bioscience is a prominent player in the biotechnology sector, specializing in the production and sale of synthetic DNA-based products. The company’s offerings are utilized in a variety of applications, including biotechnology, pharmaceutical research, and next-generation sequencing (NGS). As of October 28, 2026, Twist Bioscience’s stock closed at $173.45 per share, with a market capitalization of $11.42 billion. Despite experiencing a 7.83% decline over the past month, the company’s stock has surged by an impressive 456.05% over the past year.
Conestoga Capital Advisors provided further insights into Twist Bioscience’s performance, noting that the company has seen a significant increase in demand across several of its end markets. The market’s perception of Twist Bioscience as a leader in AI applications has strengthened investor confidence, contributing to a notable expansion in the stock’s valuation multiples during the quarter. The company’s improving gross margins and a $12 million increase in full-year revenue guidance have further bolstered investor sentiment.
Although Twist Bioscience is not listed among the 40 most popular stocks among hedge funds, it is held in 42 hedge fund portfolios at the end of the second quarter, up from 30 in the previous quarter. While Twist Bioscience shows potential as an investment, some analysts believe that certain AI stocks may offer greater upside potential and less downside risk. For those interested in undervalued AI stocks that could benefit from Trump-era tariffs and the onshoring trend, a free report on promising short-term AI stocks is available.
In related discussions, the Alger Small Cap Growth Fund has shared its views on Twist Bioscience. For additional insights, readers can explore hedge fund investor letters from the third quarter of 2026, which provide perspectives from various hedge funds and leading investors. These letters often contain valuable information about the strategies and outlooks of different investment firms, offering a broader view of the market landscape.
Footnotes:
- Conestoga Capital Advisors released its Q3 2026 investor letter, highlighting macroeconomic factors impacting small-cap equities. Source.
- Twist Bioscience Corporation closed at $173.45 per share on October 28, 2026, with a market cap of $11.42 billion. Source.
- Twist Bioscience’s stock has increased by 456.05% over the past year despite a recent 7.83% pullback. Source.
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