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.
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. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
BJ's (BJRI)
Market Cap: $917.8 million
Founded in 1978 in California, BJ’s Restaurants (NASDAQ: BJRI) is a chain of restaurants whose menu features classic American dishes, often with a twist.
Why Should You Sell BJRI?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Gross margin of 14.3% is below its competitors, leaving less money for marketing and promotions
- Underwhelming 0.9% return on capital reflects management’s difficulties in finding profitable growth opportunities
BJ’s stock price of $41.50 implies a valuation ratio of 23.7x forward P/E. If you’re considering BJRI for your portfolio, see our FREE research report to learn more.
Great Lakes Dredge & Dock (GLDD)
Market Cap: $726.1 million
Founded as Lydon & Drews dredging company, Great Lakes Dredge & Dock (NASDAQ: GLDD) provides dredging services, land reclamation, and coastal protection projects in the United States and internationally.
Why Do We Pass on GLDD?
- Muted 1.8% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Free cash flow margin dropped by 16.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $10.70 per share, Great Lakes Dredge & Dock trades at 15.4x forward P/E. Check out our free in-depth research report to learn more about why GLDD doesn’t pass our bar.
NN (NNBR)
Market Cap: $95.85 million
Formerly known as Nuturn, NN (NASDAQ: NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
Why Should You Dump NNBR?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.3% annually over the last five years
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Cash burn has widened over the last five years, making us question whether it can reliably generate shareholder value
NN is trading at $1.88 per share, or 285.3x forward P/E. Dive into our free research report to see why there are better opportunities than NNBR.
High-Quality Stocks for All Market Conditions
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