Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
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.
Compass (COMP)
Market Cap: $5.92 billion
Fueled by its mission to replace the "paper-driven, antiquated workflow" of buying a house, Compass (NYSE: COMP) is a digital-first company operating a residential real estate brokerage in the United States.
Why Do We Steer Clear of COMP?
- Sluggish trends in its principal agents suggest customers aren’t adopting its solutions as quickly as the company hoped
- Poor expense management has led to operating margin losses
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Compass’s stock price of $10.68 implies a valuation ratio of 18.3x forward P/E. To fully understand why you should be careful with COMP, check out our full research report (it’s free for active Edge members).
Avis Budget Group (CAR)
Market Cap: $4.64 billion
The parent company of brands such as Zipcar and Budget Truck Rental, Avis (NASDAQ: CAR) is a provider of car rental and mobility solutions.
Why Does CAR Give Us Pause?
- Number of available rental days - car rental has disappointed over the past two years, indicating weak demand for its offerings
- Diminishing returns on capital suggest its earlier profit pools are drying up
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $133.49 per share, Avis Budget Group trades at 16.3x forward P/E. Check out our free in-depth research report to learn more about why CAR doesn’t pass our bar.
Gates Industrial Corporation (GTES)
Market Cap: $5.71 billion
Helping create one of the most memorable moments for the iconic “Jurassic Park” film, Gates (NYSE: GTES) offers power transmission and fluid transfer equipment for various industries.
Why Does GTES Worry Us?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Estimated sales growth of 3.6% for the next 12 months is soft and implies weaker demand
- Underwhelming 7% return on capital reflects management’s difficulties in finding profitable growth opportunities
Gates Industrial Corporation is trading at $22.78 per share, or 14.3x forward P/E. Read our free research report to see why you should think twice about including GTES in your portfolio.
High-Quality Stocks for All Market Conditions
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