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Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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 avoid and some other investments you should consider instead.
The New York Times (NYT)
Market Cap: $8.97 billion
Founded in 1851, The New York Times (NYSE:NYT) is an American media organization known for its influential newspaper and expansive digital journalism platforms.
Why Are We Wary of NYT?
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Demand for its offerings was relatively low as its number of subscribers has underwhelmed
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Projected sales growth of 5.9% for the next 12 months suggests sluggish demand
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Waning returns on capital imply its previous profit engines are losing steam
The New York Times is trading at $55.04 per share, or 25.6x forward P/E. To fully understand why you should be careful with NYT, check out our full research report (it’s free).
Standex (SXI)
Market Cap: $1.89 billion
Holding over 500 patents globally, Standex (NYSE:SXI) is a manufacturer and distributor of industrial components for various sectors.
Why Does SXI Worry Us?
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Sales stagnated over the last two years and signal the need for new growth strategies
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Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.9% annually
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3.2 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
At $156.59 per share, Standex trades at 17.7x forward P/E. Read our free research report to see why you should think twice about including SXI in your portfolio, it’s free.
EchoStar (SATS)
Market Cap: $6.55 billion
Following its 2023 acquisition of DISH Network, EchoStar (NASDAQ:SATS) provides satellite communications, pay-TV services, wireless networks, and broadband solutions across consumer and enterprise markets.
Why Do We Think Twice About SATS?
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Earnings per share fell by 11.5% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
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6.8 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
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Short cash runway increases the probability of a capital raise that dilutes existing shareholders