
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.
Latham (SWIM)
Market Cap: $844 million
Started as a family business, Latham (NASDAQ:SWIM) is a global designer and manufacturer of in-ground residential swimming pools and related products.
Why Are We Wary of SWIM?
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Annual revenue declines of 14.5% over the last two years indicate problems with its market positioning
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Earnings per share fell by 21.4% annually over the last four years while its revenue grew, showing its incremental sales were much less profitable
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Negative returns on capital show management lost money while trying to expand the business
Latham’s stock price of $6.98 implies a valuation ratio of 67.4x forward price-to-earnings. To fully understand why you should be careful with SWIM, check out our full research report (it’s free) .
Columbus McKinnon (CMCO)
Market Cap: $524.8 million
With 19 different brands across the globe, Columbus McKinnon (NASDAQ:CMCO) offers material handling equipment for the construction, manufacturing, and transportation industries.
Why Are We Out on CMCO?
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Muted 2.4% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
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Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 1.8% annually
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Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 12.8 percentage points
Columbus McKinnon is trading at $18.30 per share, or 5.7x forward price-to-earnings. Check out our free in-depth research report to learn more about why CMCO doesn’t pass our bar .
Orion (ORN)
Market Cap: $216.8 million
Established in 1994, Orion (NYSE:ORN) provides construction services for marine infrastructure and industrial projects.
Why Does ORN Fall Short?
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2.4% annual revenue growth over the last five years was slower than its industrials peers
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Gross margin of 9.2% is below its competitors, leaving less money to invest in areas like marketing and R&D
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Substandard operating profitability and its deterioration over the last five years limit its responsiveness to unforeseen market trends
At $5.56 per share, Orion trades at 17.4x forward price-to-earnings. Read our free research report to see why you should think twice about including ORN in your portfolio, it’s free .
Stocks We Like More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound 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 United Rentals (+322% five-year return). Find your next big winner with StockStory today for free .