3 Small-Cap Stocks We Find Risky

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.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Agilysys (AGYS)

Market Cap: $3.09 billion

With a tech stack that powers everything from check-in to checkout at some of the world's top hospitality venues, Agilysys (NASDAQ:AGYS) develops and provides cloud-based and on-premise software solutions for hotels, resorts, casinos, and restaurants to manage operations and enhance guest experiences.

Why Are We Wary of AGYS?

1. 13.7% annual revenue growth over the last five years was slower than its software peers
2. High servicing costs result in a relatively inferior gross margin of 62.1% that must be offset through increased usage
3. Operating margin didn’t move over the last year, showing it couldn’t increase its efficiency

Agilysys is trading at $110.78 per share, or 9.7x forward price-to-sales. Check out our free in-depth research report to learn more about why AGYS doesn’t pass our bar.

B&G Foods (BGS)

Market Cap: $364 million

Started as a small grocery store in New York City, B&G Foods (NYSE:BGS) is an American packaged foods company with a diverse portfolio of more than 50 brands.

Why Do We Steer Clear of BGS?

1. Products have few die-hard fans as sales have declined by 3.9% annually over the last three years
2. Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 27.2% annually, worse than its revenue
3. High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $4.56 per share, B&G Foods trades at 8.6x forward P/E. Read our free research report to see why you should think twice about including BGS in your portfolio.

Mission Produce (AVO)

Market Cap: $831.2 million

Founded in 1983 in California, Mission Produce (NASDAQ:AVO) grows, packages, and distributes avocados.

Why Is AVO Risky?

1. Revenue base of $1.43 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Projected sales decline of 7.1% for the next 12 months points to a tough demand environment ahead
3. Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 11.1%

Mission Produce’s stock price of $11.77 implies a valuation ratio of 17.6x forward P/E. Dive into our free research report to see why there are better opportunities than AVO.

High-Quality Stocks for All Market Conditions

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