1 Small-Cap Stock with Exciting Potential and 2 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 is one small-cap stock that could be the next 100 bagger and two best left ignored.

Two Small-Cap Stocks to Sell:

Leslie's (LESL)

Market Cap: $15.24 million

Named after founder Philip Leslie, who established the company in 1963, Leslie’s (NASDAQ:LESL) is a retailer that sells pool and spa supplies, equipment, and maintenance services.

Why Do We Avoid LESL?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
3. High net-debt-to-EBITDA ratio of 15× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $1.69 per share, Leslie's trades at 14.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including LESL in your portfolio.

Alamo (ALG)

Market Cap: $2.33 billion

Expanding its markets through acquisitions since its founding, Alamo (NSYE:ALG) designs, manufactures, and services vegetation management and infrastructure maintenance equipment for governmental, industrial, and agricultural use.

Why Is ALG Not Exciting?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.3% annually over the last two years
2. Gross margin of 25.5% reflects its high production costs
3. Earnings per share have dipped by 5.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term

Alamo is trading at $193.05 per share, or 17.2x forward P/E. If you’re considering ALG for your portfolio, see our FREE research report to learn more.

One Small-Cap Stock to Watch:

Itron (ITRI)

Market Cap: $4.49 billion

Founded by a small group of engineers who wanted to build a more efficient way to read utility meters, Itron (NASDAQ:ITRI) offers energy and water management products for the utility industry, municipalities, and industrial customers.

Why Are We Positive On ITRI?

1. Operating margin expanded by 9.3 percentage points over the last five years as it scaled and became more efficient
2. Incremental sales over the last two years have been highly profitable as its earnings per share increased by 46% annually, topping its revenue gains
3. Free cash flow margin grew by 7.1 percentage points over the last five years, giving the company more chips to play with

Itron’s stock price of $100.22 implies a valuation ratio of 15.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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