Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
G-III (GIII)
Market Cap: $1.14 billion
Founded as a small leather goods business, G-III (NASDAQ: GIII) is a fashion and apparel conglomerate with a diverse portfolio of brands.
Why Is GIII Risky?
- Products and services have few die-hard fans as sales have declined by 1.2% annually over the last two years
- Sales are projected to tank by 5.9% over the next 12 months as its demand continues evaporating
- ROIC of 8.3% reflects management’s challenges in identifying attractive investment opportunities
At $27.49 per share, G-III trades at 10.7x forward P/E. If you’re considering GIII for your portfolio, see our FREE research report to learn more.
AAR (AIR)
Market Cap: $2.65 billion
The first third-party MRO approved by the FAA for Safety Management System Requirements, AAR (NYSE: AIR) is a provider of aircraft maintenance services
Why Do We Think Twice About AIR?
- Muted 6.1% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Free cash flow margin dropped by 5.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging
AAR’s stock price of $74.77 implies a valuation ratio of 16.6x forward P/E. Dive into our free research report to see why there are better opportunities than AIR.
P10 (PX)
Market Cap: $1.35 billion
Operating as a bridge between institutional investors and hard-to-access private market opportunities, P10 (NYSE: PX) is an alternative asset management firm that provides access to private equity, venture capital, impact investing, and private credit opportunities in the middle and lower middle markets.
Why Does PX Worry Us?
- Underwhelming 6% return on equity reflects management’s difficulties in finding profitable growth opportunities
P10 is trading at $12.33 per share, or 13x forward P/E. Check out our free in-depth research report to learn more about why PX doesn’t pass our bar.
Stocks We Like More
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