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.
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.
Fiverr (FVRR)
Market Cap: $301.6 million
Based in Tel Aviv, Fiverr (NYSE:FVRR) operates a fixed price global freelance marketplace for digital services.
Why Does FVRR Worry Us?
- Value proposition isn’t resonating strongly as its active buyers averaged 14% drops over the last two years
- Estimated sales decline of 23% for the next 12 months implies a challenging demand environment
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
Fiverr’s stock price of $8.45 implies a valuation ratio of 1.2x forward price-to-gross profit. Read our free research report to see why you should think twice about including FVRR in your portfolio.
Coty (COTY)
Market Cap: $2.69 billion
With a portfolio boasting many household brands, Coty (NYSE:COTY) is a beauty products powerhouse spanning cosmetics, fragrances, and skincare.
Why Are We Bearish on COTY?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Projected sales decline of 1.3% for the next 12 months points to a tough demand environment ahead
- Issuance of new shares over the last three years caused its earnings per share to fall by 26.6% annually while its revenue grew
At $3.15 per share, Coty trades at 10.1x forward P/E. If you’re considering COTY for your portfolio, see our FREE research report to learn more.
AMN Healthcare Services (AMN)
Market Cap: $1.67 billion
With a network of thousands of healthcare professionals ranging from nurses to physicians to executives, AMN Healthcare (NYSE:AMN) provides healthcare workforce solutions including temporary staffing, permanent placement, and technology platforms for hospitals and healthcare facilities across the United States.
Why Does AMN Fall Short?
- Declining travelers on assignment over the past two years indicate demand is soft and that the company may need to revise its strategy
- Earnings per share have contracted by 7.6% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Waning returns on capital imply its previous profit engines are losing steam
AMN Healthcare Services is trading at $43.46 per share, or 49x forward P/E. Check out our free in-depth research report to learn more about why AMN doesn’t pass our bar.
High-quality stocks for all market conditions
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