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 swipe left on and some alternatives you should look into instead.
Elastic (ESTC)
Market Cap: $9.57 billion
Started by Shay Banon as a search engine for his wife's growing list of recipes at Le Cordon Bleu cooking school in Paris, Elastic (NYSE: ESTC) helps companies integrate search into their products and monitor their cloud infrastructure.
Why Are We Wary of ESTC?
- Suboptimal cost structure is highlighted by its history of operating losses
- Free cash flow margin is forecasted to shrink by 2.4 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Elastic’s stock price of $89.32 implies a valuation ratio of 5.9x forward price-to-sales. Read our free research report to see why you should think twice about including ESTC in your portfolio.
Cars.com (CARS)
Market Cap: $721.5 million
Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE: CARS) is a digital marketplace that connects new and used car buyers and sellers.
Why Does CARS Give Us Pause?
- Market opportunities are plateauing as its dealer customers were flat over the last two years
- Estimated sales growth of 3.3% for the next 12 months implies demand will slow from its three-year trend
- Incremental sales over the last three years were less profitable as its earnings per share were flat while its revenue grew
Cars.com is trading at $11.08 per share, or 3.4x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than CARS.
Brady (BRC)
Market Cap: $3.36 billion
Founded in 1914 and evolving through more than a century of industrial innovation, Brady (NYSE: BRC) manufactures and supplies identification solutions and workplace safety products that help companies identify and protect their premises, products, and people.
Why Does BRC Fall Short?
- 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
- Modest revenue base of $1.42 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 1.8 percentage points
At $68.63 per share, Brady trades at 14.6x forward price-to-earnings. If you’re considering BRC for your portfolio, see our FREE research report to learn more.
Stocks We Like More
The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.
Get started by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
