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 avoid and some other investments you should consider instead.
UiPath (PATH)
Market Cap: $5.94 billion
Started in 2005 in Romania as a tech outsourcing company, UiPath (NYSE: PATH) makes software that helps companies automate repetitive computer tasks.
Why Does PATH Fall Short?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 4.2% underwhelmed
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Persistent operating margin losses suggest the business manages its expenses poorly
UiPath’s stock price of $11.15 implies a valuation ratio of 3.9x forward price-to-sales. Read our free research report to see why you should think twice about including PATH in your portfolio.
Array (ARRY)
Market Cap: $924.4 million
Going public in October 2020, Array (NASDAQ: ARRY) is a global manufacturer of ground-mounting tracking systems for utility and distributed generation solar energy projects.
Why Is ARRY Risky?
- Flat unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- Cash-burning history makes us doubt the long-term viability of its business model
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $6.08 per share, Array trades at 9.4x forward P/E. Check out our free in-depth research report to learn more about why ARRY doesn’t pass our bar.
WesBanco (WSBC)
Market Cap: $2.83 billion
Tracing its roots back to 1870 in West Virginia, WesBanco (NASDAQ: WSBC) is a bank holding company that provides retail and commercial banking, trust services, insurance, and investment products through its subsidiaries across several Midwestern and Mid-Atlantic states.
Why Does WSBC Worry Us?
- Net interest margin of 3.1% is well below other banks, signaling its loans aren’t very profitable
- Flat tangible book value per share over the last five years suggest it must find different ways to enhance shareholder value during this cycle
- ROE of 6.7% reflects management’s challenges in identifying attractive investment opportunities
WesBanco is trading at $29.51 per share, or 0.7x forward P/B. Dive into our free research report to see why there are better opportunities than WSBC.
Stocks We Like More
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