Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
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 swipe left on and some alternatives you should look into instead.
Health Catalyst (HCAT)
Market Cap: $288.6 million
Founded by healthcare professionals Tom Burton and Steve Barlow in 2008, Health Catalyst (NASDAQ:HCAT) provides data and analytics technology to healthcare organizations, enabling them to improve care and lower costs.
Why Are We Cautious About HCAT?
- Sales trends were unexciting over the last three years as its 8.2% annual growth was well below the typical software company
- Gross margin of 46.2% reflects its high servicing costs
- Suboptimal cost structure is highlighted by its history of operating losses
Health Catalyst is trading at $4.13 per share, or 0.8x forward price-to-sales. If you’re considering HCAT for your portfolio, see our FREE research report to learn more.
Paycor (PYCR)
Market Cap: $4.06 billion
Founded in 1990 in Cincinnati, Ohio, Paycor (NASDAQ: PYCR) provides software for small businesses to manage their payroll and HR needs in one place.
Why Does PYCR Fall Short?
- Gross margin of 66% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Historical operating losses point to an inefficient cost structure
- Free cash flow margin is projected to show no improvement next year
Paycor’s stock price of $22.37 implies a valuation ratio of 5.2x forward price-to-sales. Read our free research report to see why you should think twice about including PYCR in your portfolio.
Sealed Air (SEE)
Market Cap: $4.31 billion
Founded in 1960, Sealed Air Corporation (NYSE: SEE) specializes in the development and production of protective and food packaging solutions, serving a variety of industries.
Why Do We Pass on SEE?
- Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 12.3% annually, worse than its revenue
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $29.72 per share, Sealed Air trades at 9.5x forward price-to-earnings. To fully understand why you should be careful with SEE, check out our full research report (it’s free).
Stocks We Like More
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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.