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.
G-III (GIII)
Market Cap: $1.32 billion
Founded as a small leather goods business, G-III (NASDAQ: GIII) is a fashion and apparel conglomerate with a diverse portfolio of brands.
Why Do We Steer Clear of GIII?
- 7.5% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Operating margin of 6.5% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Free cash flow margin is forecasted to shrink by 5 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
At $31.19 per share, G-III trades at 14.7x forward P/E. Check out our free in-depth research report to learn more about why GIII doesn’t pass our bar.
ADT (ADT)
Market Cap: $5.97 billion
Founded in 1874 and headquartered in Boca Raton, Florida, ADT (NYSE: ADT) is a provider of security, automation, and smart home solutions, offering comprehensive services for home and business protection.
Why Should You Sell ADT?
- Sales were flat over the last five years, indicating it’s failed to expand its business
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 1.4 percentage points over the next year
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
ADT is trading at $7.50 per share, or 7.8x forward P/E. If you’re considering ADT for your portfolio, see our FREE research report to learn more.
Western Union (WU)
Market Cap: $2.84 billion
With a history dating back to 1851 when it began as a telegraph company, Western Union (NYSE: WU) is a global money transfer service that enables consumers and businesses to send funds across borders and currencies, typically within minutes.
Why Do We Think WU Will Underperform?
- Annual sales declines of 2.8% for the past five years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
Western Union’s stock price of $9.11 implies a valuation ratio of 4.7x forward P/E. Dive into our free research report to see why there are better opportunities than WU.
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