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 are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Teladoc (TDOC)
Market Cap: $1.63 billion
Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE:TDOC) is a telemedicine platform that facilitates remote doctor’s visits.
Why Does TDOC Give Us Pause?
- May need to improve its platform and marketing strategy as its 6.9% average growth in u.s. integrated care members underwhelmed
- Platform has lost its luster lately as engagement trends have been sluggish and its average revenue per user has declined by 3.2% annually
- Estimated sales decline of 2.1% for the next 12 months implies a challenging demand environment
Teladoc’s stock price of $9.50 implies a valuation ratio of 5x forward EV-to-EBITDA. To fully understand why you should be careful with TDOC, check out our full research report (it’s free).
Purple (PRPL)
Market Cap: $78.81 million
Founded by two brothers, Purple (NASDAQ:PRPL) creates sleep and home comfort products such as mattresses, pillows, and bedding accessories.
Why Should You Dump PRPL?
- Annual revenue declines of 9.4% over the last two years indicate problems with its market positioning
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Purple is trading at $0.77 per share, or 0.2x forward price-to-sales. If you’re considering PRPL for your portfolio, see our FREE research report to learn more.
Integra LifeSciences (IART)
Market Cap: $1.70 billion
Founded in 1989, Integra LifeSciences (NASDAQ:IART) develops, manufactures, and markets a broad portfolio of surgical and critical care solutions, including advanced wound care, neurosurgery, and orthopedic products.
Why Is IART Risky?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 1.4% annually
- Free cash flow margin shrank by 10.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $22.89 per share, Integra LifeSciences trades at 8.8x forward price-to-earnings. Read our free research report to see why you should think twice about including IART in your portfolio.
Stocks We Like More
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