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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
PubMatic (PUBM)
Market Cap: $384.5 million
Powering billions of daily ad impressions across the open internet, PubMatic (NASDAQ: PUBM) operates a technology platform that helps publishers maximize revenue from their digital advertising inventory while giving advertisers more control and transparency.
Why Should You Dump PUBM?
- Net revenue retention rate of 96% shows it has a tough time retaining customers
- Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 7.4 percentage points
At $8.15 per share, PubMatic trades at 1.4x forward price-to-sales. Check out our free in-depth research report to learn more about why PUBM doesn’t pass our bar.
Selective Insurance Group (SIGI)
Market Cap: $4.6 billion
Founded in 1926 during the early days of automobile insurance, Selective Insurance Group (NASDAQ: SIGI) is a property and casualty insurance company that sells commercial, personal, and excess and surplus lines insurance products through independent agents.
Why Are We Cautious About SIGI?
- Earnings per share lagged its peers over the last two years as they only grew by 12.1% annually
- 6% annual book value per share growth over the last five years was slower than its insurance peers
- ROE of 11.4% reflects management’s challenges in identifying attractive investment opportunities
Selective Insurance Group is trading at $76.76 per share, or 1.2x forward P/B. If you’re considering SIGI for your portfolio, see our FREE research report to learn more.
QCR Holdings (QCRH)
Market Cap: $1.37 billion
With roots dating back to 1993 and a name reflecting its original Quad Cities market, QCR Holdings (NASDAQGM:QCRH) operates four community banks across Iowa and Missouri, providing commercial, consumer banking, and trust services to businesses and individuals.
Why Are We Hesitant About QCRH?
- Muted 3.7% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Projected net interest income decline of 10.8% for the next 12 months points to a tough demand environment ahead
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 5.8% annually
QCR Holdings’s stock price of $81.90 implies a valuation ratio of 1.1x forward P/B. To fully understand why you should be careful with QCRH, check out our full research report (it’s free).
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