3 Small-Cap Stocks We're Skeptical Of

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.

These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Qorvo (QRVO)

Market Cap: $7.54 billion

Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.

Why Do We Think QRVO Will Underperform?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Estimated sales growth of 2.9% for the next 12 months implies demand will slow from its two-year trend
3. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 20.3 percentage points

At $81.59 per share, Qorvo trades at 12.6x forward P/E. To fully understand why you should be careful with QRVO, check out our full research report (it’s free).

The Real Brokerage (REAX)

Market Cap: $771.9 million

Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ:REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.

Why Do We Steer Clear of REAX?

1. Historical operating margin losses point to an inefficient cost structure
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 6.2% annually while its revenue grew
3. Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year

The Real Brokerage is trading at $3.67 per share, or 9.7x forward EV-to-EBITDA. If you’re considering REAX for your portfolio, see our FREE research report to learn more.

The Toro Company (TTC)

Market Cap: $8.86 billion

Ceasing all production to support the war effort during World War II, Toro (NYSE:TTC) offers outdoor equipment for residential, commercial, and agricultural use.

Why Should You Dump TTC?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
2. Flat earnings per share over the last two years underperformed the sector average
3. Eroding returns on capital suggest its historical profit centers are aging

The Toro Company’s stock price of $90.48 implies a valuation ratio of 20.3x forward P/E. Read our free research report to see why you should think twice about including TTC in your portfolio.

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