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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Health Catalyst (HCAT)
Market Cap: $239.3 million
Built on its "Health Catalyst Flywheel" methodology that emphasizes measurable outcomes, Health Catalyst (NASDAQ: HCAT) provides data and analytics technology and services that help healthcare organizations manage their data and drive measurable clinical, financial, and operational improvements.
Why Do We Think HCAT Will Underperform?
- Annual revenue growth of 6% over the last three years was well below our standards for the software sector
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Health Catalyst’s stock price of $3.35 implies a valuation ratio of 0.8x forward price-to-sales. Read our free research report to see why you should think twice about including HCAT in your portfolio.
Columbia Sportswear (COLM)
Market Cap: $3.09 billion
Originally founded as a hat store in 1938, Columbia Sportswear (NASDAQ: COLM) is a manufacturer of outerwear, sportswear, and footwear designed for outdoor enthusiasts.
Why Should You Dump COLM?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Waning returns on capital imply its previous profit engines are losing steam
At $57 per share, Columbia Sportswear trades at 17.6x forward P/E. If you’re considering COLM for your portfolio, see our FREE research report to learn more.
Pitney Bowes (PBI)
Market Cap: $2.07 billion
With a century-long history dating back to 1920 and processing over 15 billion pieces of mail annually, Pitney Bowes (NYSE: PBI) provides shipping, mailing technology, logistics, and financial services to businesses of all sizes.
Why Is PBI Not Exciting?
- Sales tumbled by 9.5% annually over the last five years, showing market trends are working against its favor during this cycle
- Sales are projected to tank by 1.3% over the next 12 months as its demand continues evaporating
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Pitney Bowes is trading at $12.01 per share, or 9.4x forward P/E. Dive into our free research report to see why there are better opportunities than PBI.
Stocks We Like More
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