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.

The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Cable One (CABO)

Market Cap: $235.8 million

Founded in 1986, Cable One (NYSE: CABO) provides high-speed internet, cable television, and telephone services, primarily in smaller markets across the United States.

Why Do We Steer Clear of CABO?

1. Performance surrounding its residential data subscribers has lagged its peers
2. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 2.3 percentage points over the next year
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Cable One is trading at $48.91 per share, or 4.2x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than CABO.

Meritage Homes (MTH)

Market Cap: $4.91 billion

Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE: MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.

Why Do We Pass on MTH?

1. Sales tumbled by 5.8% annually over the last two years, showing market trends are working against it during this cycle
2. Earnings per share have dipped by 2.2% annually over the past five years, which is concerning because stock prices follow EPS over the long term
3. Eroding returns on capital suggest its historical profit centers are aging

At $82.20 per share, Meritage Homes trades at 15.3x forward P/E. Read our free research report to see why you should think twice about including MTH in your portfolio.

F.N.B. Corporation (FNB)

Market Cap: $6.51 billion

Tracing its roots back to 1864 during the Civil War era, F.N.B. Corporation (NYSE: FNB) is a diversified financial services holding company that provides banking, wealth management, and insurance services to consumers and businesses across seven states and Washington, D.C.

Why Does FNB Worry Us?

1. 5.2% annual revenue growth over the last two years was slower than its banking peers
2. Net interest income trends were unexciting over the last five years as its 9.4% annual growth was below the typical banking firm
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 4.5% annually

F.N.B. Corporation’s stock price of $19.03 implies a valuation ratio of 0.9x forward P/B. Check out our free in-depth research report to learn more about why FNB doesn’t pass our bar.

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