Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here is one small-cap stock that could be the next 100 bagger and two that may have trouble.
Two Small-Cap Stocks to Sell:
PagerDuty (PD)
Market Cap: $534.8 million
Born from the frustration of developers being woken up by unprioritized alerts, PagerDuty (NYSE: PD) is a digital operations management platform that helps organizations detect and respond to IT incidents, outages, and other critical issues in real-time.
Why Should You Dump PD?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 2.5% underwhelmed
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Projected 2.3 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
PagerDuty is trading at $6.32 per share, or 1.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PD.
Tutor Perini (TPC)
Market Cap: $4.54 billion
Known for constructing the Philadelphia Eagles’ Stadium, Tutor Perini (NYSE: TPC) is a civil and building construction company offering diversified general contracting and design-build services.
Why Is TPC Not Exciting?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 6.7%
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Tutor Perini’s stock price of $85.72 implies a valuation ratio of 17.4x forward P/E. Read our free research report to see why you should think twice about including TPC in your portfolio.
One Small-Cap Stock to Buy:
Construction Partners (ROAD)
Market Cap: $6.31 billion
Founded in 2001, Construction Partners (NASDAQ: ROAD) is a civil infrastructure company that builds and maintains roads, highways, and other infrastructure projects.
Why Are We Bullish on ROAD?
- Annual revenue growth of 37.5% over the past two years was outstanding, reflecting market share gains this cycle
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 49.6% over the last two years outstripped its revenue performance
- Free cash flow margin jumped by 7.8 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $111.75 per share, Construction Partners trades at 38.4x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
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