Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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.
Matthews (MATW)
Market Cap: $846.2 million
Originally a death care company, Matthews International (NASDAQ: MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.
Why Do We Pass on MATW?
- Sales tumbled by 5% annually over the last five years, showing consumer trends are working against its favor
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Matthews is trading at $27.13 per share, or 0.7x trailing 12-month price-to-sales. Read our free research report to see why you should think twice about including MATW in your portfolio.
Shoals (SHLS)
Market Cap: $1.62 billion
Started in Huntsville, Alabama, Shoals (NASDAQ: SHLS) designs and manufactures products that make solar energy systems work more efficiently.
Why Is SHLS Not Exciting?
- 6.2% annual revenue growth over the last two years was slower than its industrials peers
- 7.5 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
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $9.71 per share, Shoals trades at 20.2x forward P/E. Dive into our free research report to see why there are better opportunities than SHLS.
Ingram Micro (INGM)
Market Cap: $5.91 billion
Operating as the crucial link in the global technology supply chain with a presence in 57 countries, Ingram Micro (NYSE: INGM) is a global technology distributor that connects manufacturers with resellers, providing hardware, software, cloud services, and logistics expertise.
Why Should You Sell INGM?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Earnings per share have contracted by 8.6% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
- Poor free cash flow margin of 0.2% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Ingram Micro’s stock price of $25.64 implies a valuation ratio of 7.7x forward P/E. If you’re considering INGM for your portfolio, see our FREE research report to learn more.
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