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.
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 are three small-cap stocks to avoid and some other investments you should consider instead.
Owens Corning (OC)
Market Cap: $11.54 billion
Credited with the discovery of fiberglass, Owens Corning (NYSE:OC) supplies building and construction materials to the United States and international markets.
Why Should You Dump OC?
- 2.5% annual revenue growth over the last two years was slower than its industrials peers
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 17% annually while its revenue grew
- Waning returns on capital imply its previous profit engines are losing steam
Owens Corning’s stock price of $143.35 implies a valuation ratio of 13.7x forward P/E. Read our free research report to see why you should think twice about including OC in your portfolio.
Kforce (KFRC)
Market Cap: $914 million
With nearly 60 years of matching skilled professionals with the right opportunities, Kforce (NYSE:KFRC) is a professional staffing company that specializes in placing technology and finance experts with businesses on both temporary and permanent bases.
Why Do We Avoid KFRC?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.4% annually over the last five years
- Sales were less profitable over the last five years as its earnings per share fell by 7% annually, worse than its revenue declines
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $54.64 per share, Kforce trades at 21.3x forward P/E. If you’re considering KFRC for your portfolio, see our FREE research report to learn more.
Peoples Bancorp (PEBO)
Market Cap: $1.35 billion
Founded in 1902 in Ohio and expanding through both organic growth and acquisitions, Peoples Bancorp (NASDAQ:PEBO) is a financial holding company that provides banking, insurance, equipment leasing, and investment services to consumers and businesses.
Why Do We Think PEBO Will Underperform?
- Sales trends were unexciting over the last two years as its 2.1% annual growth was below the typical banking company
- 35.3 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the firm’s willingness to accept lower profitability to defend its market position
- Incremental sales over the last five years were less profitable as its 2.1% annual earnings per share growth lagged its revenue gains
Peoples Bancorp is trading at $38.29 per share, or 1.1x forward P/B. To fully understand why you should be careful with PEBO, check out our full research report (it’s free).
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