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 is one small-cap stock that could be the next big thing and two best left ignored.
Two Small-Cap Stocks to Sell:
Cal-Maine (CALM)
Market Cap: $3.78 billion
Known for brands such as Egg-Land’s Best and Land O’ Lakes, Cal-Maine (NASDAQ: CALM) produces, packages, and distributes eggs.
Why Does CALM Give Us Pause?
- Muted 4.3% annual revenue growth over the last three years shows its demand lagged behind its consumer staples peers
- Estimated sales decline of 22.2% for the next 12 months implies a challenging demand environment
- Efficiency has decreased over the last year as its operating margin fell by 8.1 percentage points
At $84.68 per share, Cal-Maine trades at 27.8x forward P/E. To fully understand why you should be careful with CALM, check out our full research report (it’s free).
Centrus Energy (LEU)
Market Cap: $3.12 billion
Operating the only active U.S. facility licensed to produce high-assay low-enriched uranium (HALEU) for next-generation reactors, Centrus Energy (NYSE: LEU) supplies enriched uranium, the fissile component needed to produce fuel for nuclear power reactors.
Why Do We Avoid LEU?
- Modest revenue base of $452.3 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Costly operations and weak unit economics result in an inferior gross margin of 32.5% that must be offset through higher production volumes
- Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 38.7 percentage points
Centrus Energy’s stock price of $173.55 implies a valuation ratio of 37.5x forward P/E. Check out our free in-depth research report to learn more about why LEU doesn’t pass our bar.
One Small-Cap Stock to Watch:
Maximus (MMS)
Market Cap: $3.26 billion
With nearly 50 years of experience translating public policy into operational programs that serve millions of citizens, Maximus (NYSE: MMS) provides operational services, clinical assessments, and technology solutions to government agencies in the U.S. and internationally.
Why Does MMS Stand Out?
- Adjusted operating margin expanded by 2.6 percentage points over the last five years as it scaled and became more efficient
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 21.2% exceeded its revenue gains over the last two years
- Improving returns on capital reflect management’s ability to monetize investments
Maximus is trading at $56.67 per share, or 6.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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