Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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 avoid and some other investments you should consider instead.
Utz (UTZ)
Market Cap: $666.8 million
Tracing its roots back to 1921 when Bill and Salie Utz began making potato chips in their kitchen, Utz Brands (NYSE: UTZ) offers salty snacks such as potato chips, tortilla chips, pretzels, cheese snacks, and ready-to-eat popcorn, among others.
Why Is UTZ Risky?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Subscale operations are evident in its revenue base of $1.44 billion, meaning it has fewer distribution channels than its larger rivals
- ROIC of 0.2% reflects management’s challenges in identifying attractive investment opportunities
At $7.73 per share, Utz trades at 10x forward P/E. Check out our free in-depth research report to learn more about why UTZ doesn’t pass our bar.
Allient (ALNT)
Market Cap: $1.02 billion
Founded in 1962, Allient (NASDAQ: ALNT) develops and manufactures precision and specialty-controlled motion components and systems.
Why Is ALNT Not Exciting?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2.1% annually over the last two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Underwhelming 8.2% return on capital reflects management’s difficulties in finding profitable growth opportunities
Allient’s stock price of $60.29 implies a valuation ratio of 23.3x forward P/E. If you’re considering ALNT for your portfolio, see our FREE research report to learn more.
Teleflex (TFX)
Market Cap: $4.66 billion
With a portfolio spanning from vascular access catheters to minimally invasive surgical tools, Teleflex (NYSE: TFX) designs, manufactures, and supplies single-use medical devices used in critical care and surgical procedures across hospitals worldwide.
Why Should You Dump TFX?
- Sales tumbled by 18.3% annually over the last two years, showing market trends are working against its favor during this cycle
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Free cash flow margin shrank by 20.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Teleflex is trading at $105.42 per share, or 15.7x forward P/E. To fully understand why you should be careful with TFX, check out our full research report (it’s free).
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