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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Bally's (BALY)
Market Cap: $725.4 million
Headquartered in Providence, Rhode Island, Bally's Corporation (NYSE: BALY) is a diversified global casino-entertainment company that owns and manages casinos, resorts, and online gaming platforms.
Why Do We Steer Clear of BALY?
- Sales trends were unexciting over the last two years as its 6.9% annual growth was below the typical consumer discretionary company
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Bally’s stock price of $14.93 implies a valuation ratio of 11.6x forward EV-to-EBITDA. If you’re considering BALY for your portfolio, see our FREE research report to learn more.
Excelerate Energy (EE)
Market Cap: $1.06 billion
Operating specialized vessels that can deliver up to 1.2 billion cubic feet of natural gas per day, Excelerate Energy (NYSE: EE) provides liquified natural gas regasification services using floating vessels that convert LNG back into natural gas.
Why Does EE Fall Short?
- Subscale operations are evident in its revenue base of $1.35 billion, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 29.5% is below its competitors, leaving less money to invest in exploration and production
At $34.52 per share, Excelerate Energy trades at 20.3x forward P/E. To fully understand why you should be careful with EE, check out our full research report (it’s free).
Granite Ridge Resources (GRNT)
Market Cap: $639.7 million
Operating without drilling rigs or field crews of its own, Granite Ridge Resources (NYSE: GRNT) owns interests in oil and natural gas wells across six major US shale basins.
Why Do We Think Twice About GRNT?
- 8.7% annual revenue growth over the last four years was slower than its energy upstream and integrated energy peers
- Modest revenue base of $455.6 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Costs have risen faster than its revenue over the last five years, causing its EBITDA margin to decline by 32.9 percentage points
Granite Ridge Resources is trading at $4.80 per share, or 8x forward P/E. If you’re considering GRNT for your portfolio, see our FREE research report to learn more.
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