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.
Stratasys (SSYS)
Market Cap: $714.4 million
Born from the Founder’s idea of making a toy frog with a glue gun, Stratasys (NASDAQ: SSYS) offers 3D printers and related materials, software, and services to many industries.
Why Do We Steer Clear of SSYS?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.3% annually over the last two years
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Cash-burning history makes us doubt the long-term viability of its business model
At $8.40 per share, Stratasys trades at 69.8x forward P/E. Read our free research report to see why you should think twice about including SSYS in your portfolio.
10x Genomics (TXG)
Market Cap: $2.94 billion
Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ: TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.
Why Is TXG Risky?
- Annual revenue growth of 1.9% over the last two years was below our standards for the healthcare sector
- Smaller revenue base of $642.8 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Push for growth has led to negative returns on capital, signaling value destruction
10x Genomics is trading at $22.88 per share, or 4.5x forward price-to-sales. Check out our free in-depth research report to learn more about why TXG doesn’t pass our bar.
Atlas Energy Solutions (AESI)
Market Cap: $1.41 billion
Building the world's first long-haul proppant conveyor system to reduce truck traffic, Atlas Energy Solutions (NYSE: AESI) mines and processes sand used as proppant to prop open fractures in oil and gas wells during hydraulic fracturing.
Why Do We Avoid AESI?
- Revenue base of $1.10 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 20.8 percentage points
- Cash burn makes us question whether it can achieve sustainable long-term growth
Atlas Energy Solutions’s stock price of $11.49 implies a valuation ratio of 9.9x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than AESI.
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