3 Small-Cap Stocks That Fall Short

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. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Sprout Social (SPT)

Market Cap: $895.8 million

Born from the recognition that businesses needed a centralized way to handle their growing social media presence, Sprout Social (NASDAQ:SPT) provides a comprehensive software platform that helps businesses manage, analyze, and optimize their presence across various social media networks.

Why Does SPT Give Us Pause?

1. Rapid expansion strategy came at the expense of operating margin profitability
2. Low free cash flow margin of 7.6% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

Sprout Social’s stock price of $15.26 implies a valuation ratio of 1.9x forward price-to-sales. Check out our free in-depth research report to learn more about why SPT doesn’t pass our bar.

The New York Times (NYT)

Market Cap: $9.58 billion

Founded in 1851, The New York Times (NYSE:NYT) is an American media organization known for its influential newspaper and expansive digital journalism platforms.

Why Do We Think Twice About NYT?

1. Sluggish trends in its subscribers suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Estimated sales growth of 6.9% for the next 12 months is soft and implies weaker demand
3. Eroding returns on capital suggest its historical profit centers are aging

The New York Times is trading at $58.45 per share, or 26.2x forward P/E. Dive into our free research report to see why there are better opportunities than NYT.

Pediatrix Medical Group (MD)

Market Cap: $1.42 billion

With a network of approximately 2,620 affiliated physicians caring for some of the most vulnerable patients, Pediatrix Medical Group (NYSE:MD) provides specialized physician services focused on neonatal, maternal-fetal, pediatric cardiology and other pediatric subspecialty care across 37 states.

Why Do We Steer Clear of MD?

1. Weak comparable store sales trends over the past two years suggest there may be few opportunities in its core markets to open new facilities
2. Forecasted revenue decline of 1.5% for the upcoming 12 months implies demand will fall even further
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

At $16.61 per share, Pediatrix Medical Group trades at 10x forward P/E. Read our free research report to see why you should think twice about including MD in your portfolio.

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