Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
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. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
8x8 (EGHT)
Market Cap: $282.3 million
Named after its founding year (1987) with "8x8" representing binary code for communications, 8x8 (NASDAQ: EGHT) provides cloud-based contact center and unified communications solutions that enable businesses to manage customer interactions and internal communications through a single platform.
Why Do We Steer Clear of EGHT?
- Offerings struggled to generate meaningful interest as its average billings growth of 1.3% over the last year did not impress
- Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
- Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions
At $2.03 per share, 8x8 trades at 0.4x forward price-to-sales. Check out our free in-depth research report to learn more about why EGHT doesn’t pass our bar.
CSG (CSGS)
Market Cap: $1.78 billion
Powering billions of critical customer interactions annually, CSG Systems (NASDAQ: CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.
Why Is CSGS Risky?
- Annual revenue growth of 2.6% over the last two years was below our standards for the business services sector
- Revenue base of $1.21 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
CSG is trading at $64.81 per share, or 13.2x forward P/E. Dive into our free research report to see why there are better opportunities than CSGS.
AvidXchange (AVDX)
Market Cap: $2.06 billion
Born from the frustration of paper-based accounting processes in the early 2000s, AvidXchange (NASDAQ: AVDX) provides accounts payable automation software and payment solutions that help middle-market businesses digitize and streamline their invoice processing and payments.
Why Is AVDX Not Exciting?
- Negative return on equity shows that some of its growth strategies have backfired
AvidXchange’s stock price of $9.92 implies a valuation ratio of 36.1x forward P/E. Check out our free in-depth research report to learn more about why AVDX doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
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