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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Tenable (TENB)
Market Cap: $2.96 billion
Starting with the widely-used Nessus vulnerability scanner first released in 1998, Tenable (NASDAQ: TENB) provides exposure management solutions that help organizations identify, assess, and prioritize cybersecurity vulnerabilities across their IT infrastructure and cloud environments.
Why Is TENB Not Exciting?
- Average billings growth of 6.9% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 6.8% for the next 12 months implies demand will slow from its two-year trend
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
Tenable’s stock price of $33.44 implies a valuation ratio of 3.3x forward price-to-sales. If you’re considering TENB for your portfolio, see our FREE research report to learn more.
Valley National Bank (VLY)
Market Cap: $7.99 billion
Tracing its roots back to 1927 during the economic boom before the Great Depression, Valley National Bancorp (NASDAQGS:VLY) operates Valley National Bank, providing commercial, consumer, and wealth management banking services across several states.
Why Is VLY Risky?
- Annual net interest income growth of 9.6% over the last five years was below our standards for the banking sector
- Net interest margin of 3% reflects its high servicing and capital costs
- Incremental sales over the last five years were less profitable as its 1.5% annual earnings per share growth lagged its revenue gains
At $14.65 per share, Valley National Bank trades at 1x forward P/B. Dive into our free research report to see why there are better opportunities than VLY.
NBT Bancorp (NBTB)
Market Cap: $2.48 billion
Tracing its roots back to 1856 when it first opened its doors in Norwich, New York, NBT Bancorp (NASDAQ: NBTB) is a community-oriented financial institution providing banking, wealth management, and insurance services to individuals and businesses across the northeastern United States.
Why Are We Hesitant About NBTB?
- Sales trends were unexciting over the last five years as its 9.4% annual growth was below the typical banking company
- Performance over the past five years shows its incremental sales were less profitable, as its 4.8% annual earnings per share growth trailed its revenue gains
- Projected tangible book value per share growth of 11.1% for the next 12 months suggests sluggish capital generation
NBT Bancorp is trading at $49.19 per share, or 1.3x forward P/B. Check out our free in-depth research report to learn more about why NBTB doesn’t pass our bar.
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