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 is one small-cap stock that could be the next big thing and two best left ignored.
Two Small-Cap Stocks to Sell:
Insteel (IIIN)
Market Cap: $651.7 million
Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE: IIIN) provides steel wire reinforcing products for concrete.
Why Do We Think Twice About IIIN?
- 5.9% annual revenue growth over the last two years was slower than its industrials peers
- 8.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Eroding returns on capital suggest its historical profit centers are aging
Insteel is trading at $33.61 per share, or 12.3x forward P/E. To fully understand why you should be careful with IIIN, check out our full research report (it’s free).
Comstock Resources (CRK)
Market Cap: $5.69 billion
Operating in the Haynesville shale where a single well can produce millions of cubic feet of gas daily, Comstock Resources (NYSE: CRK) drills for and produces natural gas from underground shale rock formations in Louisiana and Texas.
Why Do We Steer Clear of CRK?
- Sales trends were unexciting over the last five years as its 7.4% annual growth was below the typical energy upstream and integrated energy company
- Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 4.5 percentage points
- Negative free cash flow raises questions about the return timeline for its investments
At $19.33 per share, Comstock Resources trades at 20.8x forward P/E. Read our free research report to see why you should think twice about including CRK in your portfolio.
One Small-Cap Stock to Buy:
NerdWallet (NRDS)
Market Cap: $703.9 million
Born from founder Tim Chen's frustration with the lack of transparent credit card information when helping his sister in 2009, NerdWallet (NASDAQ: NRDS) is a digital platform that provides financial guidance to help consumers and small businesses make smarter decisions about credit cards, loans, insurance, and other financial products.
Why Is NRDS a Top Pick?
- Market share has increased this cycle as its 27.8% annual revenue growth over the last five years was exceptional
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
NerdWallet’s stock price of $10.68 implies a valuation ratio of 7.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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