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.
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.
Photronics (PLAB)
Market Cap: $2.22 billion
Sporting a global footprint of facilities, Photronics (NASDAQ: PLAB) is a manufacturer of photomasks, templates used to transfer patterns onto semiconductor wafers.
Why Does PLAB Fall Short?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2.4% annually over the last two years
- Estimated sales growth of 4.1% for the next 12 months is soft and implies weaker demand
- High input costs result in an inferior gross margin of 35.9% that must be offset through higher volumes
Photronics’s stock price of $37.70 implies a valuation ratio of 18.7x forward P/E. If you’re considering PLAB for your portfolio, see our FREE research report to learn more.
Alta (ALTG)
Market Cap: $222.7 million
Founded in 1984, Alta Equipment Group (NYSE: ALTG) is a provider of industrial and construction equipment and services across the Midwest and Northeast United States.
Why Do We Pass on ALTG?
- Muted 1.1% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Alta is trading at $6.91 per share, or 6.4x forward EV-to-EBITDA. To fully understand why you should be careful with ALTG, check out our full research report (it’s free).
Baxter (BAX)
Market Cap: $11.25 billion
With a history dating back to 1931 and products used in over 100 countries, Baxter International (NYSE: BAX) provides essential healthcare products including dialysis therapies, IV solutions, infusion systems, surgical products, and patient monitoring technologies to hospitals and clinics worldwide.
Why Do We Steer Clear of BAX?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Earnings per share fell by 6% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Negative returns on capital show that some of its growth strategies have backfired, and its shrinking returns suggest its past profit sources are losing steam
At $21.80 per share, Baxter trades at 10.8x forward P/E. Dive into our free research report to see why there are better opportunities than BAX.
High-Quality Stocks for All Market Conditions
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