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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
MarineMax (HZO)
Market cap: $1.16 billion
Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE: HZO) sells boats, yachts, and other marine products.
Why Should You Sell HZO?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
MarineMax’s stock price of $52.73 implies a valuation ratio of 33.5x forward P/E. Dive into our free research report to see why there are better opportunities than HZO.
Papa John's (PZZA)
Market cap: $654.8 million
Founded by the eclectic John “Papa John” Schnatter, Papa John’s (NASDAQ: PZZA) is a globally recognized pizza delivery and carryout chain known for “better ingredients” and “better pizza”.
Why Is PZZA Risky?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Estimated sales decline of 3.8% for the next 12 months implies a challenging demand environment
- Lacking pricing power results in an inferior gross margin of 20.5% that must be offset by turning more tables
At $19.89 per share, Papa John's trades at 16.8x forward P/E. Check out our free in-depth research report to learn more about why PZZA doesn’t pass our bar.
Korn Ferry (KFY)
Market cap: $4.21 billion
With clients including 97% of the S&P 100 and operations in 103 offices across 51 countries, Korn Ferry (NYSE: KFY) is a global consulting firm that helps organizations design optimal structures, recruit talent, develop leaders, and create effective compensation strategies.
Why Does KFY Fall Short?
- Muted 3.8% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 5.4 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
Korn Ferry is trading at $77.16 per share, or 13.6x forward P/E. If you’re considering KFY for your portfolio, see our FREE research report to learn more.
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