3 Small-Cap Stocks Walking a Fine Line

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 avoid and some other investments you should consider instead.

Under Armour (UAA)

Market Cap: $2.79 billion

Founded in 1996 by a former University of Maryland football player, Under Armour (NYSE:UAA) is an apparel brand specializing in sportswear designed to improve athletic performance.

Why Should You Sell UAA?

1. Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
2. Sales are projected to tank by 3% over the next 12 months as its demand continues evaporating
3. ROIC of 0.3% reflects management’s challenges in identifying attractive investment opportunities

Under Armour is trading at $6.69 per share, or 20.9x forward price-to-earnings. Check out our free in-depth research report to learn more about why UAA doesn’t pass our bar.

3D Systems (DDD)

Market Cap: $419.1 million

Founded by the inventor of stereolithography, 3D Systems (NYSE:DDD) engineers, manufactures, and sells 3D printers and other related products to the aerospace, automotive, healthcare, and consumer goods industries.

Why Do We Steer Clear of DDD?

1. Annual sales declines of 7.2% for the past five years show its products and services struggled to connect with the market during this cycle
2. Free cash flow margin dropped by 9.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $3.09 per share, 3D Systems trades at 0.9x forward price-to-sales. To fully understand why you should be careful with DDD, check out our full research report (it’s free).

Henry Schein (HSIC)

Market Cap: $8.79 billion

Founded in 1932, Henry Schein (NASDAQ:HSIC) is a distributor of healthcare products and services, offering a broad portfolio of medical, dental, and veterinary supplies.

Why Are We Hesitant About HSIC?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Estimated sales growth of 2.8% for the next 12 months is soft and implies weaker demand
3. Eroding returns on capital suggest its historical profit centers are aging

Henry Schein’s stock price of $70.99 implies a valuation ratio of 14.2x forward price-to-earnings. If you’re considering HSIC for your portfolio, see our FREE research report to learn more.

Stocks We Like More

The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.

Get started by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.