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.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Dropbox (DBX)
Market Cap: $7.82 billion
Founded by the long-serving CEO Drew Houston and Arash Ferdowsi in 2007, Dropbox (NASDAQ:DBX) provides a file hosting cloud platform that helps organizations collaborate and share documents.
Why Does DBX Give Us Pause?
- Average billings growth of 1.1% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales decline of 2.9% for the next 12 months implies a challenging demand environment
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 2.5 percentage points
Dropbox is trading at $25.75 per share, or 3.2x forward price-to-sales. Check out our free in-depth research report to learn more about why DBX doesn’t pass our bar.
Cushman & Wakefield (CWK)
Market Cap: $2.65 billion
With expertise in the commercial real estate sector, Cushman & Wakefield (NYSE:CWK) is a global Chicago-based real estate firm offering a comprehensive range of services to clients.
Why Should You Sell CWK?
- Annual revenue declines of 3.3% over the last two years indicate problems with its market positioning
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 11.1% annually while its revenue grew
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Cushman & Wakefield’s stock price of $12 implies a valuation ratio of 9.9x forward price-to-earnings. To fully understand why you should be careful with CWK, check out our full research report (it’s free).
Jazz Pharmaceuticals (JAZZ)
Market Cap: $8.52 billion
Founded in 2003, Jazz Pharmaceuticals (NASDAQ:JAZZ) develops and commercializes therapies to address unmet medical needs in neuroscience, oncology, and rare diseases.
Why Are We Wary of JAZZ?
- Muted 5.4% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Free cash flow margin shrank by 4.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- ROIC of 3.9% reflects management’s challenges in identifying attractive investment opportunities
At $140.22 per share, Jazz Pharmaceuticals trades at 6.3x forward price-to-earnings. Read our free research report to see why you should think twice about including JAZZ in your portfolio.
Stocks We Like More
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.