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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Figs (FIGS)
Market Cap: $1.91 billion
Rising to fame via TikTok and founded in 2013 by Heather Hasson and Trina Spear, Figs (NYSE: FIGS) is a healthcare apparel company known for its stylish approach to medical attire and uniforms.
Why Should You Sell FIGS?
- Sluggish trends in its active customers suggest customers aren’t adopting its solutions as quickly as the company hoped
- Earnings per share have contracted by 5% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Figs is trading at $11.47 per share, or 20.7x forward EV-to-EBITDA. If you’re considering FIGS for your portfolio, see our FREE research report to learn more.
Bruker (BRKR)
Market Cap: $8.72 billion
With roots dating back to the pioneering days of nuclear magnetic resonance technology, Bruker (NASDAQ: BRKR) develops and manufactures high-performance scientific instruments that enable researchers and industrial analysts to explore materials at microscopic, molecular, and cellular levels.
Why Is BRKR Not Exciting?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 7.7 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $56.77 per share, Bruker trades at 26.1x forward P/E. Dive into our free research report to see why there are better opportunities than BRKR.
Texas Capital Bank (TCBI)
Market Cap: $4.36 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 Give Us Pause?
- Net interest income trends were unexciting over the last five years as its 5.1% annual growth was below the typical banking firm
- Estimated net interest income growth of 3% for the next 12 months implies demand will slow from its five-year trend
- Underwhelming 7.3% return on equity reflects management’s difficulties in finding profitable growth opportunities
Texas Capital Bank’s stock price of $99.74 implies a valuation ratio of 1.2x forward P/B. To fully understand why you should be careful with TCBI, check out our full research report (it’s free).
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