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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Peloton (PTON)
Market Cap: $2.98 billion
Started as a Kickstarter campaign, Peloton (NASDAQ: PTON) is a fitness technology company known for its at-home exercise equipment and interactive online workout classes.
Why Is PTON Risky?
- Demand for its offerings was relatively low as its number of connected fitness subscribers has underwhelmed
- Persistent operating margin losses suggest the business manages its expenses poorly
- Free cash flow margin is forecasted to shrink by 2.2 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
At $7.46 per share, Peloton trades at 731x forward P/E. Read our free research report to see why you should think twice about including PTON in your portfolio.
Marriott Vacations (VAC)
Market Cap: $2.24 billion
Spun off from Marriott International in 1984, Marriott Vacations (NYSE: VAC) is a vacation company providing leisure experiences for travelers around the world.
Why Do We Pass on VAC?
- Demand for its offerings was relatively low as its number of conducted tours has underwhelmed
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Marriott Vacations’s stock price of $64.80 implies a valuation ratio of 8.9x forward P/E. Dive into our free research report to see why there are better opportunities than VAC.
Hope Bancorp (HOPE)
Market Cap: $1.40 billion
With roots in serving Korean-American communities and now expanded to a multi-ethnic clientele across 12 states, Hope Bancorp (NASDAQ: HOPE) operates Bank of Hope, providing commercial and retail banking services with a focus on serving multi-ethnic communities across the United States.
Why Should You Sell HOPE?
- Net interest income was flat over the last five years, indicating it’s failed to expand this cycle
- Efficiency ratio worsened by 16.6 percentage points over the last four years as its sales cratered
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
Hope Bancorp is trading at $11.12 per share, or 0.6x forward P/B. Check out our free in-depth research report to learn more about why HOPE doesn’t pass our bar.
Stocks We Like More
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