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.
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. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Peloton (PTON)
Market Cap: $2.28 billion
Started as a Kickstarter campaign, Peloton (NASDAQ: PTON) is a fitness technology company known for its at-home exercise equipment and interactive online workout classes.
Why Are We Out on PTON?
- Performance surrounding its connected fitness subscribers has lagged its peers
- Sales were less profitable over the last five years as its earnings per share fell by 22.3% annually, worse than its revenue declines
- Free cash flow margin is forecasted to shrink by 3.6 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Peloton’s stock price of $5.25 implies a valuation ratio of 20.7x forward P/E. If you’re considering PTON for your portfolio, see our FREE research report to learn more.
Novavax (NVAX)
Market Cap: $1.52 billion
Pioneering a nanoparticle technology that mimics the molecular structure of disease pathogens, Novavax (NASDAQ: NVAX) develops and commercializes protein-based vaccines for infectious diseases, with a primary focus on its COVID-19 vaccine and combination respiratory vaccine candidates.
Why Do We Pass on NVAX?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 22.6% annually over the last two years
- Projected sales decline of 50.7% over the next 12 months indicates demand will continue deteriorating
- Cash burn makes us question whether it can achieve sustainable long-term growth
At $9.24 per share, Novavax trades at 5.3x forward price-to-sales. Dive into our free research report to see why there are better opportunities than NVAX.
BKV (BKV)
Market Cap: $3.03 billion
Operating a "closed-loop" model linking gas production to carbon capture, BKV (NYSE: BKV) produces natural gas from shale formations in Texas and Pennsylvania, selling it to utilities, industrial users, and exporters.
Why Are We Cautious About BKV?
- Subscale operations are evident in its revenue base of $1.36 billion, meaning it has fewer distribution channels than its larger rivals
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3% for the last five years
BKV is trading at $27.78 per share, or 15.4x forward P/E. Check out our free in-depth research report to learn more about why BKV doesn’t pass our bar.
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