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 swipe left on and some alternatives you should look into instead.
Krispy Kreme (DNUT)
Market Cap: $631.7 million
Famous for its Original Glazed doughnuts and parent company of Insomnia Cookies, Krispy Kreme (NASDAQ: DNUT) is one of the most beloved and well-known fast-food chains in the world.
Why Are We Out on DNUT?
- Earnings per share have dipped by 38.7% annually over the past three years, which is concerning because stock prices follow EPS over the long term
- Cash burn has widened over the last year, making us question whether it can reliably generate shareholder value
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $3.72 per share, Krispy Kreme trades at 4.2x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including DNUT in your portfolio.
John Bean (JBTM)
Market Cap: $7.60 billion
Tracing back to its invention of the mechanical milk bottle filler in 1884, John Bean (NYSE: JBT) designs, manufactures, and sells equipment used for food processing and aviation.
Why Are We Cautious About JBTM?
- 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
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 6.1 percentage points
- ROIC of 6.8% reflects management’s challenges in identifying attractive investment opportunities
John Bean is trading at $146.20 per share, or 21.8x forward P/E. Dive into our free research report to see why there are better opportunities than JBTM.
Capital Southwest (CSWC)
Market Cap: $1.25 billion
Originally founded in 1961 as a venture capital investor that helped launch Texas Instruments, Capital Southwest (NASDAQ: CSWC) is a business development company that provides debt and equity financing to middle-market companies primarily in the United States.
Why Does CSWC Fall Short?
- Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable
Capital Southwest’s stock price of $22.42 implies a valuation ratio of 9.6x forward P/E. If you’re considering CSWC for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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