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.
Spectrum Brands (SPB)
Market Cap: $1.29 billion
A leader in multiple consumer product categories, Spectrum Brands (NYSE:SPB) is a diversified company with a portfolio of trusted brands spanning home appliances, garden care, personal care, and pet care.
Why Do We Think SPB Will Underperform?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Spectrum Brands’s stock price of $53.36 implies a valuation ratio of 13x forward P/E. Dive into our free research report to see why there are better opportunities than SPB.
Acushnet (GOLF)
Market Cap: $4.38 billion
Producer of the acclaimed Titleist Pro V1 golf ball, Acushnet (NYSE:GOLF) is a design and manufacturing company specializing in performance-driven golf products.
Why Does GOLF Give Us Pause?
- Sales trends were unexciting over the last two years as its 2.2% annual growth was below the typical consumer discretionary company
- Estimated sales growth of 1.1% for the next 12 months is soft and implies weaker demand
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $74.69 per share, Acushnet trades at 19.9x forward P/E. To fully understand why you should be careful with GOLF, check out our full research report (it’s free).
EnerSys (ENS)
Market Cap: $4.00 billion
Supplying batteries that power equipment as big as mining rigs, EnerSys (NYSE:ENS) manufactures various kinds of batteries for a range of industries.
Why Do We Think Twice About ENS?
- Declining unit sales over the past two years imply it may need to invest in improvements to get back on track
- Projected sales growth of 1.6% for the next 12 months suggests sluggish demand
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 4.2% for the last five years
EnerSys is trading at $106.88 per share, or 9.2x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including ENS in your portfolio.
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