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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
The Marzetti Company (MZTI)
Market Cap: $3.22 billion
Known for its frozen garlic bread and Parkerhouse rolls, The Marzetti Company (NASDAQ:MZTI) sells bread, dressing, and dips to the retail and food service channels.
Why Is MZTI Not Exciting?
- Lackluster 1.8% annual revenue growth over the last three years indicates the company is losing ground to competitors
- Smaller revenue base of $1.92 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Easily substituted products (and therefore stiff competition) result in an inferior gross margin of 23.5% that must be offset through higher volumes
The Marzetti Company’s stock price of $117.60 implies a valuation ratio of 16.7x forward P/E. Dive into our free research report to see why there are better opportunities than MZTI.
Atkore (ATKR)
Market Cap: $2.57 billion
Protecting the things that power our world, Atkore (NYSE:ATKR) designs and manufactures electrical safety products.
Why Is ATKR Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.8% annually over the last two years
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.2 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
At $76.27 per share, Atkore trades at 14.4x forward P/E. If you’re considering ATKR for your portfolio, see our FREE research report to learn more.
United Community Banks (UCB)
Market Cap: $4.06 billion
Starting as a small community bank in 1950 and expanding through strategic acquisitions across the Southeast, United Community Banks (NYSE:UCB) is a regional bank holding company that provides financial services including loans, deposits, wealth management, and merchant services across the southeastern United States.
Why Are We Wary of UCB?
- Annual revenue growth of 7.6% over the last two years was below our standards for the banking sector
- Performance over the past five years shows its incremental sales were less profitable, as its 3.5% annual earnings per share growth trailed its revenue gains
- Estimated tangible book value per share growth of 8% for the next 12 months implies profitability will slow from its two-year trend
United Community Banks is trading at $33.94 per share, or 1.1x forward P/B. To fully understand why you should be careful with UCB, check out our full research report (it’s free).
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