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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Simply Good Foods (SMPL)
Market Cap: $1.95 billion
Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ: SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.
Why Do We Think SMPL Will Underperform?
- Modest revenue base of $1.45 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
- 4.9 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
Simply Good Foods’s stock price of $19.85 implies a valuation ratio of 10x forward P/E. To fully understand why you should be careful with SMPL, check out our full research report (it’s free for active Edge members).
Brady (BRC)
Market Cap: $3.58 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?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Smaller revenue base of $1.51 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Free cash flow margin shrank by 5.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Brady is trading at $75.98 per share, or 15.1x forward P/E. Dive into our free research report to see why there are better opportunities than BRC.
Moderna (MRNA)
Market Cap: $10.44 billion
Rising to global prominence during the COVID-19 pandemic with one of the first effective vaccines, Moderna (NASDAQ: MRNA) develops messenger RNA (mRNA) medicines that direct the body's cells to produce proteins with therapeutic or preventive benefits for various diseases.
Why Do We Avoid MRNA?
- Sales tumbled by 50.5% annually over the last two years, showing market trends are working against its favor during this cycle
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 215.1 percentage points
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $26.64 per share, Moderna trades at 6.4x forward price-to-sales. If you’re considering MRNA for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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