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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Herbalife (HLF)
Market Cap: $873.3 million
With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE: HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.
Why Do We Think Twice About HLF?
- Falling unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Sales were less profitable over the last three years as its earnings per share fell by 25.6% annually, worse than its revenue declines
Herbalife’s stock price of $8.67 implies a valuation ratio of 4.2x forward price-to-earnings. Check out our free in-depth research report to learn more about why HLF doesn’t pass our bar.
WeightWatchers (WW)
Market Cap: $41.87 million
Known by many for its old cable television commercials, WeightWatchers (NASDAQ: WW) is a wellness company offering a range of products and services promoting weight loss and healthy habits.
Why Do We Steer Clear of WW?
- Number of members has disappointed over the past two years, indicating weak demand for its offerings
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
WeightWatchers is trading at $0.52 per share, or 0.3x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than WW.
Resideo (REZI)
Market Cap: $2.62 billion
Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.
Why Are We Cautious About REZI?
- Sales trends were unexciting over the last two years as its 3% annual growth was below the typical industrials company
- Earnings per share have dipped by 5.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $17.70 per share, Resideo trades at 7.4x forward price-to-earnings. Read our free research report to see why you should think twice about including REZI in your portfolio.
Stocks We Like More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
