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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
ZoomInfo (ZI)
Market Cap: $3.23 billion
Founded in 2007 as DiscoveryOrg and renamed after a merger in 2019, ZoomInfo (NASDAQ: ZI) is a software as a service product that provides sales departments with access to a database of prospective clients.
Why Do We Steer Clear of ZI?
- Offerings struggled to generate interest as its billings were flat over the last year
- Complex implementation process for enterprise clients means customers take longer to ramp up, as seen in its extended payback periods
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 10.3 percentage points
At $10.28 per share, ZoomInfo trades at 2.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ZI.
El Pollo Loco (LOCO)
Market Cap: $293.6 million
With a name that translates into ‘The Crazy Chicken’, El Pollo Loco (NASDAQ: LOCO) is a fast food chain known for its citrus-marinated, fire-grilled chicken recipe that hails from the coastal town of Sinaloa, Mexico.
Why Do We Avoid LOCO?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Modest revenue base of $476 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Anticipated sales growth of 4% for the next year implies demand will be shaky
El Pollo Loco’s stock price of $9.77 implies a valuation ratio of 4.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including LOCO in your portfolio.
The Real Brokerage (REAX)
Market Cap: $857.8 million
Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ: REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.
Why Should You Sell REAX?
- Poor expense management has led to operating losses
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 9% annually while its revenue grew
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
The Real Brokerage is trading at $4.21 per share, or 16x forward EV-to-EBITDA. If you’re considering REAX for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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