Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Campbell's (CPB)
Market Cap: $6.49 billion
With its iconic canned soup as its cornerstone product, Campbell's (NASDAQ:CPB) is a packaged food company with an illustrious portfolio of brands.
Why Should You Sell CPB?
- Declining unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Projected sales decline of 2.9% for the next 12 months points to a tough demand environment ahead
- Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 10.2% annually
Campbell's is trading at $21.75 per share, or 12.6x forward P/E. To fully understand why you should be careful with CPB, check out our full research report (it’s free).
Sabre (SABR)
Market Cap: $912.1 million
Originally a division of American Airlines, Sabre (NASDAQ:SABR) is a technology provider for the global travel and tourism industry.
Why Is SABR Risky?
- Demand for its offerings was relatively low as its number of total bookings has underwhelmed
- Cash-burning history makes us doubt the long-term viability of its business model
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $2.27 per share, Sabre trades at 6.9x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SABR.
Oaktree Specialty Lending (OCSL)
Market Cap: $1.12 billion
Managed by Oaktree Capital Management, one of the world's premier alternative investment firms, Oaktree Specialty Lending (NASDAQ:OCSL) is a business development company that provides customized financing solutions to mid-market companies across various industries.
Why Are We Out on OCSL?
- Sales tumbled by 13.3% annually over the last two years, showing market trends are working against it during this cycle
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 1.8% annually while its revenue grew
- Tangible book value per share tumbled by 6.2% annually over the last five years, showing financials sector trends are working against it during this cycle
Oaktree Specialty Lending’s stock price of $13 implies a valuation ratio of 9.6x forward P/E. Check out our free in-depth research report to learn more about why OCSL doesn’t pass our bar.
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