
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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
ON24 (ONTF)
Market Cap: $235.3 million
Started in 1998 as a platform to broadcast press conferences, ON24’s (NYSE:ONTF) software helps organizations organize online webinars and other virtual events and convert prospects into customers.
Why Do We Steer Clear of ONTF?
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Offerings couldn’t generate interest over the last year as its billings have averaged 8.1% declines
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Platform has low switching costs as its net revenue retention rate of 91% demonstrates high turnover
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Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
ON24 is trading at $5.75 per share, or 1.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ONTF .
Light & Wonder (LNW)
Market Cap: $8.62 billion
With names as crazy as Ultimate Fire Link Power 4 for its products, Light & Wonder (NASDAQ:LNW) is a gaming company supplying the casino industry with slot machines, table games, and digital games.
Why Are We Wary of LNW?
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Products and services have few die-hard fans as sales have declined by 1.3% annually over the last five years
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Estimated sales growth of 9.1% for the next 12 months implies demand will slow from its two-year trend
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ROIC of 7.3% reflects management’s challenges in identifying attractive investment opportunities
At $102.42 per share, Light & Wonder trades at 18.8x forward price-to-earnings. To fully understand why you should be careful with LNW, check out our full research report (it’s free) .
Kadant (KAI)
Market Cap: $4.20 billion
Headquartered in Massachusetts, Kadant (NYSE:KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.
Why Are We Hesitant About KAI?
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Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
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Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.5% annually
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Free cash flow margin didn’t grow over the last five years
Kadant’s stock price of $350.38 implies a valuation ratio of 32.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why KAI doesn’t pass our bar .
Stocks We Like More
The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.
Get started by checking out our Top 6 Stocks for this week . This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free .