3 Small-Cap Stocks with Warning Signs

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.

Luxfer (LXFR)

Market Cap: $361.5 million

With its magnesium alloys used in the construction of the famous Spirit of St. Louis aircraft, Luxfer (NYSE:LXFR) offers specialized materials, components, and gas containment devices to various industries.

Why Do We Avoid LXFR?

1. Annual sales declines of 2.5% for the past two years show its products and services struggled to connect with the market during this cycle
2. Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Luxfer is trading at $13.53 per share, or 12.2x forward P/E. Dive into our free research report to see why there are better opportunities than LXFR.

Valley National Bank (VLY)

Market Cap: $6.51 billion

Tracing its roots back to 1927 during the economic boom before the Great Depression, Valley National Bancorp (NASDAQGS:VLY) operates Valley National Bank, providing commercial, consumer, and wealth management banking services across several states.

Why Do We Think VLY Will Underperform?

1. Flat sales over the last two years suggest it must find different ways to grow during this cycle
2. Net interest income trends were unexciting over the last five years as its 10% annual growth was below the typical banking firm
3. Incremental sales over the last five years were much less profitable as its earnings per share fell by 2.5% annually while its revenue grew

At $11.63 per share, Valley National Bank trades at 0.9x forward P/B. To fully understand why you should be careful with VLY, check out our full research report (it’s free for active Edge members).

Origin Bancorp (OBK)

Market Cap: $1.16 billion

Founded in 1912 during the early boom days of Louisiana banking, Origin Bancorp (NYSE:OBK) is a financial holding company that provides personalized banking services to businesses, municipalities, and individuals across Texas, Louisiana, and Mississippi.

Why Are We Hesitant About OBK?

1. Annual revenue growth of 4.6% over the last two years was below our standards for the banking sector
2. Incremental sales over the last two years were less profitable as its 2.9% annual earnings per share growth lagged its revenue gains
3. Estimated tangible book value per share growth of 8.9% for the next 12 months implies profitability will slow from its two-year trend

Origin Bancorp’s stock price of $37.60 implies a valuation ratio of 0.9x forward P/B. Read our free research report to see why you should think twice about including OBK in your portfolio.

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