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. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Qorvo (QRVO)
Market Cap: $7.54 billion
Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.
Why Do We Think QRVO Will Underperform?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Estimated sales growth of 2.9% for the next 12 months implies demand will slow from its two-year trend
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 20.3 percentage points
At $81.59 per share, Qorvo trades at 12.6x forward P/E. To fully understand why you should be careful with QRVO, check out our full research report (it’s free).
The Real Brokerage (REAX)
Market Cap: $771.9 million
Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ: REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.
Why Do We Steer Clear of REAX?
- Historical operating margin losses point to an inefficient cost structure
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 6.2% annually while its revenue grew
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
The Real Brokerage is trading at $3.67 per share, or 9.7x forward EV-to-EBITDA. If you’re considering REAX for your portfolio, see our FREE research report to learn more.
The Toro Company (TTC)
Market Cap: $8.86 billion
Ceasing all production to support the war effort during World War II, Toro (NYSE: TTC) offers outdoor equipment for residential, commercial, and agricultural use.
Why Should You Dump TTC?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Flat earnings per share over the last two years underperformed the sector average
- Eroding returns on capital suggest its historical profit centers are aging
The Toro Company’s stock price of $90.48 implies a valuation ratio of 20.3x forward P/E. Read our free research report to see why you should think twice about including TTC in your portfolio.
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