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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here is one small-cap stock that could be the next 100 bagger and two that could be down big.
Two Small-Cap Stocks to Sell:
Advance Auto Parts (AAP)
Market Cap: $2.59 billion
Founded in Virginia in 1932, Advance Auto Parts (NYSE:AAP) is an auto parts and accessories retailer that sells everything from carburetors to motor oil to car floor mats.
Why Do We Avoid AAP?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 6.7 percentage points
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $42.74 per share, Advance Auto Parts trades at 17.1x forward P/E. Check out our free in-depth research report to learn more about why AAP doesn’t pass our bar.
Cushman & Wakefield (CWK)
Market Cap: $3.57 billion
With expertise in the commercial real estate sector, Cushman & Wakefield (NYSE:CWK) is a global Chicago-based real estate firm offering a comprehensive range of services to clients.
Why Are We Out on CWK?
- Sizable revenue base leads to growth challenges as its 4.1% annual revenue increases over the last five years fell short of other consumer discretionary companies
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.2% for the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Cushman & Wakefield is trading at $15.42 per share, or 11.3x forward P/E. Dive into our free research report to see why there are better opportunities than CWK.
One Small-Cap Stock to Watch:
Ollie's (OLLI)
Market Cap: $6.71 billion
Often located in suburban or semi-rural shopping centers, Ollie’s Bargain Outlet (NASDAQ:OLLI) is a discount retailer that acquires excess inventory then sells at meaningful discounts.
Why Could OLLI Be a Winner?
- Offensive push to build new stores and attack its untapped market opportunities is backed by its same-store sales growth
- Comparable store sales rose by 3.2% on average over the past two years, demonstrating its ability to drive increased spending at existing locations
- Demand for the next 12 months is expected to accelerate above its three-year trend as Wall Street forecasts robust revenue growth of 14.8%
Ollie’s stock price of $109.35 implies a valuation ratio of 25.6x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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