Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
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.
Columbia Sportswear (COLM)
Market Cap: $3.19 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 Are We Out on COLM?
- Sales trends were unexciting over the last five years as its 5.8% annual growth was below the typical consumer discretionary company
- Poor free cash flow margin of 6.9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $62.41 per share, Columbia Sportswear trades at 16.8x forward P/E. Check out our free in-depth research report to learn more about why COLM doesn’t pass our bar.
Privia Health (PRVA)
Market Cap: $3.12 billion
Operating in 13 states and the District of Columbia with over 4,300 providers serving more than 4.8 million patients, Privia Health (NASDAQ: PRVA) is a technology-driven company that helps physicians optimize their practices, improve patient experiences, and transition to value-based care models.
Why Are We Cautious About PRVA?
- Modest revenue base of $2.12 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Push for growth has led to negative returns on capital, signaling value destruction
Privia Health’s stock price of $24.85 implies a valuation ratio of 22.8x forward P/E. If you’re considering PRVA for your portfolio, see our FREE research report to learn more.
Applied Digital (APLD)
Market Cap: $9.79 billion
Pivoting from its origins in cryptocurrency mining to become a key player in the AI infrastructure boom, Applied Digital (NASDAQ: APLD) designs and operates specialized data centers that provide high-performance computing infrastructure for artificial intelligence and blockchain applications.
Why Does APLD Worry Us?
- Issuance of new shares over the last four years caused its earnings per share to fall by 3.7% annually while its revenue grew
- Cash-burning history makes us doubt the long-term viability of its business model
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Applied Digital is trading at $34.14 per share, or 41.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including APLD in your portfolio.
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