Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Atkore (ATKR)
Market Cap: $2.23 billion
Protecting the things that power our world, Atkore (NYSE: ATKR) designs and manufactures electrical safety products.
Why Are We Wary of ATKR?
- 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
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 25.6% annually, worse than its revenue
- Eroding returns on capital suggest its historical profit centers are aging
At $64 per share, Atkore trades at 7.4x forward price-to-earnings. If you’re considering ATKR for your portfolio, see our FREE research report to learn more.
Universal Logistics (ULH)
Market Cap: $702.4 million
Founded in 1932, Universal Logistics (NASDAQ: ULH) is a provider of customized transportation and logistics solutions operating throughout the United States and in Mexico, Canada, and Colombia.
Why Is ULH Risky?
- Sales tumbled by 4.3% annually over the last two years, showing market trends are working against its favor during this cycle
- Earnings per share have contracted by 18.5% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 11.9 percentage points
Universal Logistics’s stock price of $26.77 implies a valuation ratio of 5.8x forward price-to-earnings. Check out our free in-depth research report to learn more about why ULH doesn’t pass our bar.
Genco (GNK)
Market Cap: $575.5 million
Headquartered in NYC, Genco (NYSE: GNK) is a shipping company that transports dry bulk cargo along worldwide maritime routes.
Why Does GNK Worry Us?
- Demand for its offerings was relatively low as its number of owned vessels has underwhelmed
- Projected sales decline of 14.9% over the next 12 months indicates demand will continue deteriorating
- Issuance of new shares over the last two years caused its earnings per share to fall by 34.7% annually, even worse than its revenue declines
Genco is trading at $13.46 per share, or 18.8x forward price-to-earnings. If you’re considering GNK for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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