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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. Keeping that in mind, here is one small-cap stock that could be the next big thing and two best left ignored.
Two Small-Cap Stocks to Sell:
American Woodmark (AMWD)
Market Cap: $877.5 million
Starting as a small millwork shop, American Woodmark (NASDAQ:AMWD) is a cabinet manufacturing company that helps customers from inspiration to installation.
Why Do We Think AMWD Will Underperform?
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Customers postponed purchases of its products and services this cycle as its revenue declined by 8.1% annually over the last two years
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Earnings per share have dipped by 1.2% annually over the past five years, which is concerning because stock prices follow EPS over the long term
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Free cash flow margin dropped by 5.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
American Woodmark is trading at $58.73 per share, or 7.8x forward price-to-earnings. Read our free research report to see why you should think twice about including AMWD in your portfolio, it’s free.
Artivion (AORT)
Market Cap: $1.02 billion
Formerly known as CryoLife until its 2022 rebranding, Artivion (NYSE:AORT) develops and manufactures medical devices and preserves human tissues used in cardiac and vascular surgical procedures for patients with aortic disease.
Why Are We Out on AORT?
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Annual revenue growth of 7.1% over the last five years was below our standards for the healthcare sector
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Revenue base of $388.5 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
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Incremental sales over the last five years were much less profitable as its earnings per share fell by 5.1% annually while its revenue grew
At $23.85 per share, Artivion trades at 49.5x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than AORT.
One Small-Cap Stock to Watch:
Upwork (UPWK)
Market Cap: $1.79 billion
Formed through the 2013 merger of Elance and oDesk, Upwork (NASDAQ:UPWK) is an online platform where businesses and independent professionals connect to get work done.
Why Does UPWK Stand Out?
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Monetization efforts are paying off as its average revenue per customer has grown by 8.4% annually over the last two years
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Additional sales over the last three years increased its profitability as the 168% annual growth in its earnings per share outpaced its revenue
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Free cash flow margin jumped by 21.1 percentage points over the last few years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends