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. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Lamb Weston (LW)
Market Cap: $6.92 billion
Best known for its Grown in Idaho brand, Lamb Weston (NYSE: LW) produces and distributes potato products such as frozen french fries and mashed potatoes.
Why Does LW Fall Short?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 22.9%
At $49.71 per share, Lamb Weston trades at 18.8x forward P/E. If you’re considering LW for your portfolio, see our FREE research report to learn more.
NN (NNBR)
Market Cap: $86.34 million
Formerly known as Nuturn, NN (NASDAQ: NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
Why Should You Sell NNBR?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.4% annually over the last two years
- Earnings per share fell by 18.8% annually over the last five years while its revenue was flat, partly because it diluted shareholders
- Negative free cash flow raises questions about the return timeline for its investments
NN is trading at $1.74 per share, or 26.3x forward P/E. Check out our free in-depth research report to learn more about why NNBR doesn’t pass our bar.
DXC (DXC)
Market Cap: $2.27 billion
Born from the 2017 merger of Computer Sciences Corporation and HP Enterprise's services business, DXC Technology (NYSE: DXC) is a global IT services company that helps businesses transform their technology infrastructure, applications, and operations.
Why Do We Pass on DXC?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Forecasted revenue decline of 1.9% for the upcoming 12 months implies demand will fall even further
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up
DXC’s stock price of $13.50 implies a valuation ratio of 4.2x forward P/E. Read our free research report to see why you should think twice about including DXC in your portfolio.
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