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.
iHeartMedia (IHRT)
Market Cap: $824.3 million
Occasionally featuring celebrity hosts like Ryan Seacrest on its shows, iHeartMedia (NASDAQ: IHRT) is a leading multimedia company renowned for its extensive network of radio stations, digital platforms, and live events across the globe.
Why Is IHRT Risky?
- Annual revenue growth of 5.6% over the last five years was below our standards for the consumer discretionary sector
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
iHeartMedia’s stock price of $5.87 implies a valuation ratio of 8.1x forward EV-to-EBITDA. To fully understand why you should be careful with IHRT, check out our full research report (it’s free).
Integer Holdings (ITGR)
Market Cap: $2.93 billion
With its name reflecting the mathematical term for "whole" or "complete," Integer Holdings (NYSE: ITGR) is a medical device outsource manufacturer that produces components and systems for cardiac, vascular, neurological, and other medical applications.
Why Is ITGR Not Exciting?
- Smaller revenue base of $1.86 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
- Underwhelming 5.4% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $86.29 per share, Integer Holdings trades at 13.5x forward P/E. Check out our free in-depth research report to learn more about why ITGR doesn’t pass our bar.
Ladder Capital (LADR)
Market Cap: $1.31 billion
Founded during the 2008 financial crisis when traditional lenders retreated from commercial real estate, Ladder Capital (NYSE: LADR) is a real estate investment trust that originates commercial real estate loans, owns commercial properties, and invests in real estate securities.
Why Are We Wary of LADR?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 8.3% annually over the last two years
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 17.9% annually, worse than its revenue
- Flat tangible book value per share over the last five years suggest it must find different ways to enhance shareholder value during this cycle
Ladder Capital is trading at $10.37 per share, or 0.9x forward P/B. Read our free research report to see why you should think twice about including LADR in your portfolio.
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