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 avoid and some other investments you should consider instead.
iHeartMedia (IHRT)
Market Cap: $235.9 million
Occasionally featuring celebrity hosts like Ryan Seacrest on its shows, iHeartMedia (NASDAQ:IHRT) is a leading multimedia company renowned for its extensive network of radio stations, digital platforms, and live events across the globe.
Why Do We Pass on IHRT?
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Products and services fail to spark excitement with consumers, as seen in its flat sales over the last two years
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Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
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Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
iHeartMedia is trading at $1.76 per share, or 0.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including IHRT in your portfolio, it’s free.
Bio-Techne (TECH)
Market Cap: $8.28 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 Does TECH Worry Us?
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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
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Modest revenue base of $1.21 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
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Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.2 percentage points
Bio-Techne’s stock price of $53.80 implies a valuation ratio of 25.4x forward P/E. If you’re considering TECH for your portfolio, see our FREE research report to learn more.
Ladder Capital (LADR)
Market Cap: $1.39 billion
Founded during the 2008 financial crisis when traditional lenders retreated from commercial real estate, Ladder Capital (NYSE:LADR) is a real estate investment trust that originates commercial real estate loans, owns commercial properties, and invests in real estate securities.
Story ContinuesWhy Should You Dump LADR?
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Customers postponed purchases of its products and services this cycle as its revenue declined by 12.9% annually over the last two years
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Earnings per share fell by 6% annually over the last five years while its revenue was flat, showing each sale was less profitable
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Tangible book value per share was flat over the last two years, indicating it’s failed to build equity value this cycle
At $10.85 per share, Ladder Capital trades at 0.9x forward P/B. Read our free research report to see why you should think twice about including LADR in your portfolio, it’s free.
High-Quality Stocks for All Market Conditions
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