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 avoid and some other investments you should consider instead.

JELD-WEN (JELD)

Market Cap: $478.3 million

Founded in the 1960s as a general wood-making company, JELD-WEN (NYSE: JELD) manufactures doors, windows, and other related building products.

Why Do We Think JELD Will Underperform?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

JELD-WEN’s stock price of $5.60 implies a valuation ratio of 88.5x forward P/E. Dive into our free research report to see why there are better opportunities than JELD.

Maximus (MMS)

Market Cap: $4.67 billion

With nearly 50 years of experience translating public policy into operational programs that serve millions of citizens, Maximus (NYSE: MMS) provides operational services, clinical assessments, and technology solutions to government agencies in the U.S. and internationally.

Why Is MMS Not Exciting?

1. Estimated sales growth of 1.9% for the next 12 months implies demand will slow from its two-year trend
2. 11.3 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
3. Underwhelming 12.3% return on capital reflects management’s difficulties in finding profitable growth opportunities

At $82.45 per share, Maximus trades at 12.6x forward P/E. Read our free research report to see why you should think twice about including MMS in your portfolio.

Insight Enterprises (NSIT)

Market Cap: $4.04 billion

With over 35 years of IT expertise and partnerships with more than 8,000 technology providers, Insight Enterprises (NASDAQ: NSIT) provides end-to-end digital transformation solutions that help businesses modernize their IT infrastructure and maximize the value of technology.

Why Should You Sell NSIT?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.2% annually over the last two years
2. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 2.8% annually
3. Poor free cash flow margin of 2.3% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

Insight Enterprises is trading at $128.52 per share, or 12.7x forward P/E. To fully understand why you should be careful with NSIT, check out our full research report (it’s free).

Stocks We Like More

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