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.
Newmark (NMRK)
Market Cap: $2.55 billion
Founded in 1929, Newmark (NASDAQ: NMRK) provides commercial real estate services, including leasing advisory, global corporate services, investment sales and capital markets, property and facilities management, valuation and advisory, and consulting.
Why Should You Sell NMRK?
- Lackluster 12.5% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Rising returns on capital show management is making relatively better investments
Newmark’s stock price of $14.32 implies a valuation ratio of 7.5x forward P/E. To fully understand why you should be careful with NMRK, check out our full research report (it’s free).
Ibotta (IBTA)
Market Cap: $717.1 million
Originally launched as a way to make grocery shopping more rewarding for budget-conscious consumers, Ibotta (NYSE: IBTA) is a mobile shopping app that allows consumers to earn cash back on everyday purchases by completing tasks and submitting receipts.
Why Does IBTA Fall Short?
- Annual revenue growth of 1.2% over the last two years was below our standards for the business services sector
- Smaller revenue base of $340.3 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Falling earnings per share over the last one years has some investors worried as stock prices ultimately follow EPS over the long term
Ibotta is trading at $30.81 per share, or 21.3x forward P/E. If you’re considering IBTA for your portfolio, see our FREE research report to learn more.
Customers Bancorp (CUBI)
Market Cap: $2.45 billion
Originally founded with a "high-tech, high-touch" branch-light banking strategy, Customers Bancorp (NYSE: CUBI) is a bank holding company that provides commercial and consumer banking services through its Customers Bank subsidiary, with a focus on business lending and digital banking.
Why Do We Think Twice About CUBI?
- 7.6% annual revenue growth over the last two years was slower than its banking peers
- Weak unit economics are reflected in its net interest margin of 3.3%, one of the worst among bank companies
- Performance over the past two years shows its incremental sales were less profitable, as its 3.1% annual earnings per share growth trailed its revenue gains
At $72.40 per share, Customers Bancorp trades at 1x forward P/B. Dive into our free research report to see why there are better opportunities than CUBI.
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