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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.
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 is one small-cap stock that could amplify your portfolio’s returns and two that may have trouble.
Two Small-Cap Stocks to Sell:
1-800-FLOWERS (FLWS)
Market Cap: $342.2 million
Founded in 1976, 1-800-FLOWERS (NASDAQ:FLWS) is an online retailer of flowers, gifts, and gourmet foods, serving customers globally.
Why Do We Pass on FLWS?
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Products and services aren't resonating with the market as its revenue declined by 9.7% annually over the last two years
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Incremental sales over the last five years were much less profitable as its earnings per share fell by 29.6% annually while its revenue grew
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Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
1-800-FLOWERS’s stock price of $5.48 implies a valuation ratio of 17x forward price-to-earnings. To fully understand why you should be careful with FLWS, check out our full research report (it’s free).
Timken (TKR)
Market Cap: $4.33 billion
Established after the founder noticed the difficulty freight wagons had making sharp turns, Timken (NYSE:TKR) is a provider of industrial parts used across various sectors.
Why Are We Out on TKR?
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Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
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Earnings per share fell by 2.9% annually over the last two years while its revenue was flat, showing each sale was less profitable
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Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.3 percentage points
Timken is trading at $63.30 per share, or 9.7x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than TKR.
One Small-Cap Stock to Buy:
Liquidity Services (LQDT)
Market Cap: $953.5 million
Powering what it calls the "circular economy" with over 5.5 million registered buyers across its platforms, Liquidity Services (NASDAQ:LQDT) operates online marketplaces that connect buyers and sellers of surplus assets, from consumer returns to industrial equipment to government property.