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 swipe left on and some alternatives you should look into instead.
Gray Television (GTN)
Market Cap: $515.3 million
Specializing in local media coverage, Gray Television (NYSE: GTN) is a broadcast company supplying digital media to various markets in the United States.
Why Do We Avoid GTN?
- 5.4% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Returns on capital haven’t budged, indicating management couldn’t drive additional value creation
- 8× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Gray Television’s stock price of $4.54 implies a valuation ratio of 1.3x forward P/E. Read our free research report to see why you should think twice about including GTN in your portfolio.
Griffon (GFF)
Market Cap: $3.18 billion
Initially in the defense industry, Griffon (NYSE: GFF) is a now diversified company specializing in home improvement, professional equipment, and building products.
Why Are We Wary of GFF?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.7% annually over the last two years
- Forecasted revenue decline of 28.7% for the upcoming 12 months implies demand will fall even further
At $68.27 per share, Griffon trades at 13.1x forward P/E. If you’re considering GFF for your portfolio, see our FREE research report to learn more.
PennyMac Mortgage Investment Trust (PMT)
Market Cap: $976.3 million
Operating as a real estate investment trust since 2009 to maintain tax advantages, PennyMac Mortgage Investment Trust (NYSE: PMT) is a specialty finance company that invests in mortgage-related assets and operates a correspondent lending business.
Why Are We Out on PMT?
- Annual sales declines of 23.1% for the past five years show its products and services struggled to connect with the market during this cycle
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 5.4% annually over the last five years
PennyMac Mortgage Investment Trust is trading at $11.42 per share, or 0.8x forward P/B. To fully understand why you should be careful with PMT, check out our full research report (it’s free).
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