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 pass on and some alternatives you should look into instead.
Silgan Holdings (SLGN)
Market cap: $4.50 billion
Established in 1987, Silgan Holdings (NYSE:SLGN) is a supplier of rigid packaging for consumer goods products, specializing in metal containers, closures, and plastic packaging.
Why Do We Avoid SLGN?
- Annual revenue growth of 4.2% over the last five years was below our standards for the industrials sector
- High input costs result in an inferior gross margin of 16.9% that must be offset through higher volumes
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Silgan Holdings is trading at $41.49 per share, or 10.1x forward P/E. Check out our free in-depth research report to learn more about why SLGN doesn’t pass our bar.
First Commonwealth Financial (FCF)
Market cap: $2.08 billion
Tracing its roots back to the Great Depression era of 1934, First Commonwealth Financial (NYSE:FCF) is a financial holding company that provides consumer and commercial banking, wealth management, and insurance services across Pennsylvania and Ohio.
Why Do We Think Twice About FCF?
- 7.5% annual revenue growth over the last two years was slower than its banking peers
- Incremental sales over the last five years were less profitable as its 4.6% annual earnings per share growth lagged its revenue gains
- 5.7% annual tangible book value per share growth over the last two years was slower than its banking peers
At $21.22 per share, First Commonwealth Financial trades at 1.3x forward P/B. Dive into our free research report to see why there are better opportunities than FCF.
AXIS Capital (AXS)
Market cap: $7.65 billion
Founded in the aftermath of the 9/11 attacks when insurance capacity was scarce, AXIS Capital Holdings Limited (NYSE:AXS) is a global specialty insurer and reinsurer that provides coverage for complex risks across property, liability, professional lines, cyber, and other specialty markets.
Why Does AXS Fall Short?
- Sluggish 6.2% annualized growth in net premiums earned over the last five years indicates the firm trailed its insurance peers
- Performance over the past two years shows its incremental sales were less profitable, as its 6.4% annual earnings per share growth trailed its revenue gains
- Capital trends were unexciting over the last two years as its 9.8% annual book value per share growth was below the typical insurance firm
AXIS Capital’s stock price of $106.63 implies a valuation ratio of 1.3x forward P/B. If you’re considering AXS for your portfolio, see our FREE research report to learn more.
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