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 swipe left on and some alternatives you should look into instead.
RingCentral (RNG)
Market Cap: $3.33 billion
Built on its proprietary Message Video Phone (MVP) platform that unifies multiple communication methods, RingCentral (NYSE: RNG) provides AI-driven cloud communications and collaboration solutions that enable businesses to connect through voice, video, messaging, and contact center services.
Why Do We Think RNG Will Underperform?
- Average billings growth of 3.8% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 4.5% for the next 12 months implies demand will slow from its two-year trend
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
RingCentral’s stock price of $39.50 implies a valuation ratio of 1.4x forward price-to-sales. Read our free research report to see why you should think twice about including RNG in your portfolio.
Sally Beauty (SBH)
Market Cap: $1.40 billion
Catering to both everyday consumers as well as salon professionals, Sally Beauty (NYSE: SBH) is a retailer that sells salon-quality beauty products such as makeup and haircare products.
Why Should You Sell SBH?
- Lack of new stores suggest it’s attempting to increase revenue at existing locations because demand is sluggish
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Revenue base of $3.71 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
At $14.47 per share, Sally Beauty trades at 6.7x forward P/E. Dive into our free research report to see why there are better opportunities than SBH.
AdaptHealth (AHCO)
Market Cap: $1.82 billion
With a network of approximately 680 locations serving patients across all 50 states, AdaptHealth (NASDAQ: AHCO) provides home medical equipment, supplies, and related services to patients with chronic conditions like sleep apnea, diabetes, and respiratory disorders.
Why Does AHCO Give Us Pause?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Issuance of new shares over the last five years caused its earnings per share to fall by 6.4% annually while its revenue grew
- ROIC of 0.5% reflects management’s challenges in identifying attractive investment opportunities
AdaptHealth is trading at $13.37 per share, or 13x forward P/E. To fully understand why you should be careful with AHCO, check out our full research report (it’s free).
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