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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
ICF International (ICFI)
Market Cap: $1.74 billion
Operating at the intersection of policy, technology, and implementation for over five decades, ICF International (NASDAQ: ICFI) provides professional consulting services and technology solutions to government agencies and commercial clients across energy, health, environment, and security sectors.
Why Should You Sell ICFI?
- Backlog has dropped by 1.2% on average over the past two years, suggesting it’s losing orders as competition picks up
- Forecasted revenue decline of 2.3% for the upcoming 12 months implies demand will fall off a cliff
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
ICF International is trading at $94.32 per share, or 13.9x forward P/E. Check out our free in-depth research report to learn more about why ICFI doesn’t pass our bar.
Valmont (VMI)
Market Cap: $7.45 billion
Credited with an invention in the 1950s that improved crop yields, Valmont (NYSE: VMI) provides engineered products and infrastructure services for the agricultural industry.
Why Do We Think Twice About VMI?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.9%
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 6.8% annually
Valmont’s stock price of $377.48 implies a valuation ratio of 23.3x forward EV-to-EBITDA. If you’re considering VMI for your portfolio, see our FREE research report to learn more.
Bio-Techne (TECH)
Market Cap: $8.23 billion
With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ: TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.
Why Do We Steer Clear of TECH?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Smaller revenue base of $1.22 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- 12 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $53.87 per share, Bio-Techne trades at 25.7x forward P/E. Dive into our free research report to see why there are better opportunities than TECH.
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