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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Bumble (BMBL)
Market Cap: $580.3 million
Started by the co-founder of Tinder, Whitney Wolfe Herd, Bumble (NASDAQ:BMBL) is a leading dating app built with women at the center.
Why Does BMBL Worry Us?
- Competition may be pulling attention away from its platform as its 1.5% average growth in paying users was choppy
- Key performance metrics have been flashing red recently as its average revenue per buyer dropped by 26.5% annually while engagement was weak
- Projected sales decline of 11.1% for the next 12 months points to a tough demand environment ahead
Bumble is trading at $4.48 per share, or 3.4x forward EV/EBITDA. If you’re considering BMBL for your portfolio, see our FREE research report to learn more.
Procore Technologies (PCOR)
Market Cap: $8.43 billion
With a mission to build software for the people that build the world, Procore Technologies (NYSE:PCOR) provides cloud-based software that enables owners, contractors, and other stakeholders to collaborate and manage construction projects from any device.
Why Are We Wary of PCOR?
- ARR growth averaged a weak 14.8% over the last year, suggesting that competition is pulling some attention away from its software
- Estimated sales growth of 13% for the next 12 months implies demand will slow from its two-year trend
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
At $56.17 per share, Procore Technologies trades at 5.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PCOR.
Bio-Techne (TECH)
Market Cap: $9.34 billion
With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ:TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.
Why Should You Sell TECH?
- 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
- Subscale operations are evident in its revenue base of $1.22 billion, meaning it has fewer distribution channels than its larger rivals
- 11.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Bio-Techne’s stock price of $59.85 implies a valuation ratio of 29.4x forward P/E. To fully understand why you should be careful with TECH, check out our full research report (it’s free).
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