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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here is one small-cap stock that could be the next 100 bagger and two that may have trouble.
Two Small-Cap Stocks to Sell:
Park-Ohio (PKOH)
Market Cap: $350.4 million
Based in Cleveland, Park-Ohio (NASDAQ: PKOH) provides supply chain management services, capital equipment, and manufactured components.
Why Do We Pass on PKOH?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.8% annually over the last two years
- Earnings per share decreased by more than its revenue over the last two years, partly because it diluted shareholders
- Cash burn makes us question whether it can achieve sustainable long-term growth
Park-Ohio’s stock price of $25.60 implies a valuation ratio of 8.2x forward P/E. Check out our free in-depth research report to learn more about why PKOH doesn’t pass our bar.
Whirlpool (WHR)
Market Cap: $3.75 billion
Credited with introducing the first automatic washing machine, Whirlpool (NYSE: WHR) is a manufacturer of a variety of home appliances.
Why Do We Avoid WHR?
- Annual sales declines of 4.4% for the past five years show its products and services struggled to connect with the market during this cycle
- Free cash flow margin dropped by 7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Whirlpool is trading at $57.79 per share, or 10.3x forward P/E. To fully understand why you should be careful with WHR, check out our full research report (it’s free).
One Small-Cap Stock to Watch:
Granite Construction (GVA)
Market Cap: $5.44 billion
Having played a role in the construction of the Hoover Dam, Granite Construction (NYSE: GVA) is a provider of infrastructure solutions for roads, bridges, and other projects.
Why Are We Fans of GVA?
- Impressive 12.3% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 38.9% outpaced its revenue gains
- Free cash flow margin increased by 9.6 percentage points over the last five years, giving the company more capital to invest or return to shareholders
At $125.00 per share, Granite Construction trades at 20.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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