Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
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.
Strategic Education (STRA)
Market Cap: $1.80 billion
Formed through the merger of Strayer Education and Capella Education in 2018, Strategic Education (NASDAQ: STRA) is a career-focused higher education provider.
Why Should You Sell STRA?
- Demand for its offerings was relatively low as its number of international students has underwhelmed
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
- Poor free cash flow margin of 11.6% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Strategic Education’s stock price of $80.59 implies a valuation ratio of 1.4x forward price-to-sales. To fully understand why you should be careful with STRA, check out our full research report (it’s free).
Graphic Packaging Holding (GPK)
Market Cap: $3.19 billion
Founded in 1991, Graphic Packaging (NYSE: GPK) is a provider of paper-based packaging solutions for a wide range of products.
Why Is GPK Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.3% annually over the last two years
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Earnings per share have contracted by 29.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
Graphic Packaging Holding is trading at $10.82 per share, or 11.5x forward P/E. Dive into our free research report to see why there are better opportunities than GPK.
CONMED (CNMD)
Market Cap: $1.11 billion
With over five decades of experience in surgical innovation since its founding in 1970, CONMED (NYSE: CNMD) develops and manufactures medical devices and equipment for surgical procedures, specializing in orthopedic and general surgery products.
Why Are We Hesitant About CNMD?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Subscale operations are evident in its revenue base of $1.37 billion, meaning it has fewer distribution channels than its larger rivals
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
At $36.90 per share, CONMED trades at 6.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why CNMD doesn’t pass our bar.
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