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 avoid and some other investments you should consider instead.
Victoria's Secret (VSCO)
Market Cap: $1.69 billion
Spun off from L Brands in 2020, Victoria’s Secret (NYSE: VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.
Why Should You Dump VSCO?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Subpar operating margin of 4.5% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Earnings per share have dipped by 21.8% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Victoria's Secret is trading at $21.10 per share, or 7.6x forward P/E. If you’re considering VSCO for your portfolio, see our FREE research report to learn more.
G-III (GIII)
Market Cap: $1.26 billion
Founded as a small leather goods business, G-III (NASDAQ: GIII) is a fashion and apparel conglomerate with a diverse portfolio of brands.
Why Do We Avoid GIII?
- Sales were flat over the last two years, indicating it's failed to expand its business
- Projected sales decline of 2% for the next 12 months points to an even tougher demand environment ahead
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $29.05 per share, G-III trades at 7.2x forward P/E. Dive into our free research report to see why there are better opportunities than GIII.
Acushnet (GOLF)
Market Cap: $4.01 billion
Producer of the acclaimed Titleist Pro V1 golf ball, Acushnet (NYSE: GOLF) is a design and manufacturing company specializing in performance-driven golf products.
Why Is GOLF Not Exciting?
- Muted 2.2% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8.9% for the last two years
Acushnet’s stock price of $68.24 implies a valuation ratio of 18.3x forward P/E. If you’re considering GOLF for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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