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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.
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 is one small-cap stock that could amplify your portfolio’s returns and two best left ignored.
Two Small-Cap Stocks to Sell:
Advanced Drainage (WMS)
Market Cap: $8.63 billion
Originally started as a farm water drainage company, Advanced Drainage Systems (NYSE:WMS) provides clean water management solutions to communities across America.
Why Do We Think Twice About WMS?
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Customers postponed purchases of its products and services this cycle as its revenue declined by 3.1% annually over the last two years
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Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 1.7% annually
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8.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Advanced Drainage’s stock price of $111.21 implies a valuation ratio of 17x forward P/E. Check out our free in-depth research report to learn more about why WMS doesn’t pass our bar.
Corcept (CORT)
Market Cap: $7.47 billion
Focusing on the powerful stress hormone that affects everything from metabolism to immune function, Corcept Therapeutics (NASDAQ:CORT) develops and markets medications that modulate cortisol to treat endocrine disorders, cancer, and neurological diseases.
Why Are We Cautious About CORT?
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Smaller revenue base of $685.4 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
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Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 16.2 percentage points
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16.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Corcept is trading at $71.17 per share, or 34.9x forward P/E. To fully understand why you should be careful with CORT, check out our full research report (it’s free).
One Small-Cap Stock to Watch:
Armstrong World (AWI)
Market Cap: $6.48 billion
Started as a two-man shop dating back to the 1860s, Armstrong (NYSE:AWI) provides ceiling and wall products to commercial and residential spaces.