Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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.
Arhaus (ARHS)
Market Cap: $1.11 billion
With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ: ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.
Why Do We Think Twice About ARHS?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Subscale operations are evident in its revenue base of $1.38 billion, meaning it has fewer distribution channels than its larger rivals
- Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 25.6% annually
Arhaus’s stock price of $7.71 implies a valuation ratio of 16.5x forward P/E. Check out our free in-depth research report to learn more about why ARHS doesn’t pass our bar.
Integra LifeSciences (IART)
Market Cap: $1.54 billion
Founded in 1989 as a pioneer in regenerative medicine technology, Integra LifeSciences (NASDAQ: IART) develops and manufactures medical technologies for neurosurgery, wound care, and surgical reconstruction, including regenerative tissue products and surgical instruments.
Why Do We Think IART Will Underperform?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 2.4% annually while its revenue grew
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Integra LifeSciences is trading at $19.49 per share, or 7.6x forward P/E. Dive into our free research report to see why there are better opportunities than IART.
Clear Channel Outdoor (CCO)
Market Cap: $1.23 billion
With thousands of digital and traditional displays lighting up America's highways, city streets, and airports, Clear Channel Outdoor (NYSE: CCO) operates billboards, street furniture, and airport displays, connecting advertisers with millions of consumers across the US.
Why Does CCO Fall Short?
- Annual sales declines of 2.9% for the past five years show its products and services struggled to connect with the market during this cycle
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- 12× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $2.41 per share, Clear Channel Outdoor trades at 13.9x forward EV-to-EBITDA. To fully understand why you should be careful with CCO, check out our full research report (it’s free).
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