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.
Carter's (CRI)
Market Cap: $1.27 billion
Rumored to sell more than 10 products for every child born in the United States, Carter's (NYSE: CRI) is an American designer and marketer of children's apparel.
Why Are We Out on CRI?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Low free cash flow margin of 5.4% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $34.83 per share, Carter's trades at 11.3x forward P/E. To fully understand why you should be careful with CRI, check out our full research report (it’s free).
Texas Capital Bank (TCBI)
Market Cap: $4.10 billion
Founded during the Texas banking renaissance of the 1990s with an entrepreneurial spirit, Texas Capital Bancshares (NASDAQ: TCBI) is a financial services firm that provides banking, wealth management, and investment banking services to businesses and individuals across Texas and beyond.
Why Does TCBI Fall Short?
- Annual net interest income growth of 3.9% over the last five years was below our standards for the banking sector
- Projected net interest income growth of 4.2% for the next 12 months suggests sluggish demand
- Low return on equity reflects management’s struggle to allocate funds effectively
Texas Capital Bank’s stock price of $92.64 implies a valuation ratio of 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than TCBI.
Community Bank (CBU)
Market Cap: $2.98 billion
Tracing its roots back to 1866 in upstate New York, Community Financial System (NYSE: CBU) is a financial holding company that provides banking, employee benefits, wealth management, and insurance services to retail, commercial, and municipal customers.
Why Are We Wary of CBU?
- 6.6% annual net interest income growth over the last five years was slower than its banking peers
- Performance over the past five years shows its incremental sales were less profitable, as its 4.8% annual earnings per share growth trailed its revenue gains
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 3% annually over the last five years
Community Bank is trading at $56.81 per share, or 1.4x forward P/B. If you’re considering CBU for your portfolio, see our FREE research report to learn more.
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