Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Couchbase (BASE)
Market Cap: $1.33 billion
Formed in 2011 with the merger of Membase and CouchOne, Couchbase (NASDAQ:BASE) is a database-as-a-service platform that allows enterprises to store large volumes of semi-structured data.
Why Does BASE Give Us Pause?
- Average billings growth of 6.6% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Cash-burning history makes us doubt the long-term viability of its business model
At $24.21 per share, Couchbase trades at 5.5x forward price-to-sales. Read our free research report to see why you should think twice about including BASE in your portfolio.
Newmark (NMRK)
Market Cap: $2.79 billion
Founded in 1929, Newmark (NASDAQ:NMRK) provides commercial real estate services, including leasing advisory, global corporate services, investment sales and capital markets, property and facilities management, valuation and advisory, and consulting.
Why Should You Dump NMRK?
- Lackluster 7.4% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Underwhelming 2.7% return on capital reflects management’s difficulties in finding profitable growth opportunities
Newmark’s stock price of $15.12 implies a valuation ratio of 9.7x forward P/E. Dive into our free research report to see why there are better opportunities than NMRK.
Renasant (RNST)
Market Cap: $3.38 billion
Founded in 1904 during a time when the South was rebuilding its economy, Renasant (NYSE:RNST) is a regional bank holding company that offers banking, wealth management, insurance, and specialized lending services throughout the Southeast.
Why Are We Hesitant About RNST?
- Earnings per share fell by 8.6% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- 4.2% annual tangible book value per share growth over the last two years was slower than its bank peers
- Below-average return on equity indicates management struggled to find compelling investment opportunities
Renasant is trading at $35.52 per share, or 0.9x forward P/B. Check out our free in-depth research report to learn more about why RNST doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
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