3 Small-Cap Stocks in Hot Water
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.
Sonos (SONO)
Market Cap: $1.54 billion
A pioneer in connected home audio systems, Sonos (NASDAQ:SONO) offers a range of premium wireless speakers and sound systems.
Why Do We Pass on SONO?
Sales tumbled by 9.1% annually over the last two years, showing consumer trends are working against its favor
Suboptimal cost structure is highlighted by its history of operating losses
Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 5.8% annually
Sonos's stock price of $12.98 implies a valuation ratio of 22x forward price-to-earnings. Read our free research report to see why you should think twice about including SONO in your portfolio.
Hexcel (HXL)
Market Cap: $4.71 billion
Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE:HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.
Why Does HXL Worry Us?
Customers postponed purchases of its products and services this cycle as its revenue declined by 4.2% annually over the last five years
Earnings per share have dipped by 10.5% annually over the past five years, which is concerning because stock prices follow EPS over the long term
Low returns on capital reflect management's struggle to allocate funds effectively
At $58.59 per share, Hexcel trades at 24.5x forward price-to-earnings. If you're considering HXL for your portfolio, see our FREE research report to learn more.
Hertz (HTZ)
Market Cap: $1.26 billion
Started with a dozen Model T Fords, Hertz (NASDAQ:HTZ) is a global car rental company providing vehicle rental services to leisure and business travelers.
Why Should You Dump HTZ?
Weak unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
Waning returns on capital imply its previous profit engines are losing steam
Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Hertz is trading at $4.13 per share, or 3.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including HTZ in your portfolio.
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The weight management opportunity Novo Nordisk primarily develops medicines for diabetes and, in recent years, weight management. Its stock has plunged over the past year because its financial results haven't been as impressive as the market had hoped. It also faced some clinical setbacks, while its biggest rival in its core markets, Eli Lilly, earned some important wins. However, there's more to the story. The market for anti-obesity medications could grow at an incredibly rapid rate. Some analysts estimate that it will be worth $150 billion by 2035, compared to $15 billion last year. Novo Nordisk still has one of the deepest pipelines in the industry. In fact, it's challenging to find a company other than Eli Lilly that has more promising products. Recently, Novo Nordisk expanded its pipeline through various licensing deals. 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