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.
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. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Rapid7 (RPD)
Market Cap: $347.3 million
With its name inspired by the need for quick responses to cyber threats, Rapid7 (NASDAQ:RPD) provides cybersecurity software and services that help organizations detect vulnerabilities, monitor threats, and respond to security incidents.
Why Should You Dump RPD?
- Average billings growth of 1.3% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 2.8 percentage points
At $5.23 per share, Rapid7 trades at 0.4x forward price-to-sales. Check out our free in-depth research report to learn more about why RPD doesn’t pass our bar.
Amneal (AMRX)
Market Cap: $3.78 billion
Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ:AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.
Why Are We Wary of AMRX?
- Estimated sales growth of 2.1% for the next 12 months implies demand will slow from its two-year trend
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 1 percentage points
- ROIC of 4.9% reflects management’s challenges in identifying attractive investment opportunities
Amneal is trading at $11.90 per share, or 12.2x forward P/E. Dive into our free research report to see why there are better opportunities than AMRX.
Insight Enterprises (NSIT)
Market Cap: $2.04 billion
With over 35 years of IT expertise and partnerships with more than 8,000 technology providers, Insight Enterprises (NASDAQ:NSIT) provides end-to-end digital transformation solutions that help businesses modernize their IT infrastructure and maximize the value of technology.
Why Should You Sell NSIT?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Estimated sales growth of 1.3% for the next 12 months is soft and implies weaker demand
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 1.1% annually
Insight Enterprises’s stock price of $65.77 implies a valuation ratio of 6.4x forward P/E. If you’re considering NSIT for your portfolio, see our FREE research report to learn more.
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