Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Reynolds (REYN)
Market Cap: $4.58 billion
Best known for its aluminum foil, Reynolds (NASDAQ: REYN) is a household products company whose products focus on food storage, cooking, and waste.
Why Is REYN Risky?
- Flat unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Gross margin of 25.4% is below its competitors, leaving less money to invest in areas like marketing and production facilities
Reynolds’s stock price of $21.63 implies a valuation ratio of 13.3x forward P/E. Check out our free in-depth research report to learn more about why REYN doesn’t pass our bar.
Levi's (LEVI)
Market Cap: $8.21 billion
Credited for inventing the first pair of blue jeans in 1873, Levi's (NYSE: LEVI) is an apparel company renowned for its iconic denim products and classic American style.
Why Do We Think LEVI Will Underperform?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Free cash flow margin is forecasted to shrink by 4.9 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Levi's is trading at $21.05 per share, or 13.5x forward P/E. To fully understand why you should be careful with LEVI, check out our full research report (it’s free).
Hilton Grand Vacations (HGV)
Market Cap: $3.89 billion
Spun off from Hilton Worldwide in 2017, Hilton Grand Vacations (NYSE: HGV) is a global timeshare company that provides travel experiences for its customers through its timeshare resorts and club membership programs.
Why Are We Out on HGV?
- Demand for its offerings was relatively low as its number of members has underwhelmed
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $48.76 per share, Hilton Grand Vacations trades at 8.3x forward P/E. If you’re considering HGV for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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