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.
Carriage Services (CSV)
Market Cap: $610.9 million
Established in 1991, Carriage Services (NYSE: CSV) is a provider of funeral and cemetery services in the United States.
Why Should You Dump CSV?
- 3.6% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Returns on capital haven’t budged, indicating management couldn’t drive additional value creation
At $38.80 per share, Carriage Services trades at 10.7x forward P/E. Dive into our free research report to see why there are better opportunities than CSV.
Hexcel (HXL)
Market Cap: $7.02 billion
Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE: HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.
Why Are We Wary of HXL?
- Annual revenue growth of 3.7% over the last two years was below our standards for the industrials sector
- Earnings per share lagged its peers over the last two years as they only grew by 6.4% annually
- Underwhelming 6.9% return on capital reflects management’s difficulties in finding profitable growth opportunities
Hexcel is trading at $93.38 per share, or 37.8x forward P/E. Check out our free in-depth research report to learn more about why HXL doesn’t pass our bar.
Fortune Brands (FBIN)
Market Cap: $4.93 billion
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE: FBIN) makes plumbing, security, and outdoor living products.
Why Should You Sell FBIN?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Earnings per share have dipped by 6% annually over the past five years, which is concerning because stock prices follow EPS over the long term
Fortune Brands’s stock price of $41.30 implies a valuation ratio of 12x forward P/E. To fully understand why you should be careful with FBIN, check out our full research report (it’s free).
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