3 Small-Cap Stocks with Warning Signs

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.

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 avoid and some other investments you should consider instead.

America's Car-Mart (CRMT)

Market Cap: $218.6 million

With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ:CRMT) sells used cars to budget-conscious consumers.

Why Do We Steer Clear of CRMT?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Earnings per share have contracted by 38.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

At $25.47 per share, America's Car-Mart trades at 11.9x forward P/E. Read our free research report to see why you should think twice about including CRMT in your portfolio.

Hyster-Yale Materials Handling (HY)

Market Cap: $626.4 million

Playing a significant role in the development of the hydraulic lift truck, Hyster-Yale (NYSE:HY) designs, manufactures, and sells materials handling equipment to various sectors.

Why Do We Pass on HY?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Forecasted revenue decline of 3.5% for the upcoming 12 months implies demand will fall off a cliff
3. Earnings per share were flat while its revenue grew over the last five years, partly because it issued new shares

Hyster-Yale Materials Handling’s stock price of $34.21 implies a valuation ratio of 3.9x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than HY.

FirstCash (FCFS)

Market Cap: $6.85 billion

Offering a financial lifeline to the unbanked and credit-constrained since 1988, FirstCash (NASDAQ:FCFS) operates pawn stores across the U.S. and Latin America while also providing retail point-of-sale payment solutions for credit-constrained consumers.

Why Do We Think Twice About FCFS?

1. Sales trends were unexciting over the last two years as its 7.4% annual growth was below the typical financials company
2. Tangible book value per share tumbled by 14.1% annually over the last five years, showing financials sector trends are working against its favor during this cycle

FirstCash is trading at $152.41 per share, or 17.8x forward P/E. To fully understand why you should be careful with FCFS, check out our full research report (it’s free for active Edge members).

Stocks We Like More

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