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 is one small-cap stock that could be the next 100 bagger and two that may have trouble.
Two Small-Cap Stocks to Sell:
Lincoln Educational (LINC)
Market Cap: $726 million
Established in 1946, Lincoln Educational (NASDAQ: LINC) is a provider of specialized technical training in the United States, offering career-oriented programs to provide practical skills required in the workforce.
Why Do We Avoid LINC?
- Number of enrolled students has disappointed over the past two years, indicating weak demand for its offerings
- Negative free cash flow raises questions about the return timeline for its investments
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Lincoln Educational’s stock price of $22.98 implies a valuation ratio of 11.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why LINC doesn’t pass our bar.
Bel Fuse (BELFA)
Market Cap: $1.26 billion
Founded by 26-year-old Elliot Bernstein during the electronics boom after WW2, Bel Fuse (NASDAQ: BELF.A) provides electronic systems and devices to the telecommunications, networking, transportation, and industrial sectors.
Why Are We Cautious About BELFA?
- Sales tumbled by 10% annually over the last two years, showing market trends are working against its favor during this cycle
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
At $91.49 per share, Bel Fuse trades at 9.7x forward EV-to-EBITDA. If you’re considering BELFA for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Watch:
KBR (KBR)
Market Cap: $6.11 billion
Known for projects like the construction of Guantanamo Bay, KBR provides professional services and technologies, specializing in engineering, construction, and government services sectors.
Why Are We Fans of KBR?
- 10.3% annual revenue growth over the last two years surpassed the sector average as its offerings resonated with customers
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Share repurchases over the last five years enabled its annual earnings per share growth of 16% to outpace its revenue gains
KBR is trading at $47.07 per share, or 12.2x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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