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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 swipe left on and some alternatives you should look into instead.
BeautyHealth (SKIN)
Market Cap: $150.3 million
Operating in the emerging beauty health category, the appropriately named BeautyHealth (NASDAQ:SKIN) is a skincare company best known for its Hydrafacial product that cleanses and hydrates skin.
Why Do We Avoid SKIN?
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Revenue base of $334.3 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
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Persistent operating losses suggest the business manages its expenses poorly
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High net-debt-to-EBITDA ratio of 15× increases the risk of forced asset sales or dilutive financing if operational performance weakens
BeautyHealth is trading at $1.24 per share, or 9.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SKIN doesn’t pass our bar.
Advanced Energy (AEIS)
Market Cap: $2.98 billion
Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ:AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.
Why Do We Think AEIS Will Underperform?
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Customers postponed purchases of its products and services this cycle as its revenue declined by 10.4% annually over the last two years
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Free cash flow margin shrank by 6.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
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Waning returns on capital imply its previous profit engines are losing steam
Advanced Energy’s stock price of $79.03 implies a valuation ratio of 15.9x forward price-to-earnings. Read our free research report to see why you should think twice about including AEIS in your portfolio, it’s free.
Bio-Techne (TECH)
Market Cap: $8.18 billion
With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ:TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.