Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Sabre (SABR)
Market Cap: $753.5 million
Originally a division of American Airlines, Sabre (NASDAQ:SABR) is a technology provider for the global travel and tourism industry.
Why Are We Wary of SABR?
- Performance surrounding its central reservation system transactions has lagged its peers
- Negative free cash flow raises questions about the return timeline for its investments
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $1.92 per share, Sabre trades at 7.5x forward P/E. Check out our free in-depth research report to learn more about why SABR doesn’t pass our bar.
Marcus & Millichap (MMI)
Market Cap: $1.14 billion
Founded in 1971, Marcus & Millichap (NYSE:MMI) specializes in commercial real estate investment sales, financing, research, and advisory services.
Why Do We Pass on MMI?
- Sales were flat over the last five years, indicating it’s failed to expand its business
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Eroding returns on capital suggest its historical profit centers are aging
Marcus & Millichap’s stock price of $29.25 implies a valuation ratio of 139x forward P/E. Dive into our free research report to see why there are better opportunities than MMI.
ASGN (ASGN)
Market Cap: $1.95 billion
Evolving from its roots in IT staffing to become a high-end technology consulting powerhouse, ASGN (NYSE:ASGN) provides specialized IT consulting services and staffing solutions to Fortune 1000 companies and U.S. federal government agencies.
Why Should You Sell ASGN?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.2% annually over the last two years
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
ASGN is trading at $44.55 per share, or 9.3x forward P/E. If you’re considering ASGN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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