3 Small-Cap Stocks in Hot Water

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. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Matthews (MATW)

Market Cap: $712 million

Originally a death care company, Matthews International (NASDAQ:MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.

Why Do We Steer Clear of MATW?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 10% annually while its revenue grew
3. Low returns on capital reflect management’s struggle to allocate funds effectively

Matthews’s stock price of $22.44 implies a valuation ratio of 4.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including MATW in your portfolio.

AMN Healthcare Services (AMN)

Market Cap: $995.6 million

Founded in 1985, AMN Healthcare Services (NYSE:AMN) provides workforce and staffing services for the healthcare industry, specializing in placing nurses, physicians, and other health in various care settings.

Why Do We Pass on AMN?

1. Declining travelers on assignment over the past two years suggest it might have to lower prices to accelerate growth
2. Sales are projected to tank by 11.3% over the next 12 months as its demand continues evaporating
3. Waning returns on capital imply its previous profit engines are losing steam

At $25.20 per share, AMN Healthcare Services trades at 17.1x forward price-to-earnings. To fully understand why you should be careful with AMN, check out our full research report (it’s free).

NeoGenomics (NEO)

Market Cap: $1.40 billion

Founded in 2001, NeoGenomics (NASDAQ:NEO) provides genetic and molecular testing services to support cancer diagnosis and treatment decisions, specializing in clinical testing, molecular oncology, and pharmacogenomics (impact of genes on drugs and vice versa).

Why Do We Avoid NEO?

1. Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 20.3% annually
2. Push for growth has led to negative returns on capital, signaling value destruction, and its falling returns suggest its earlier profit pools are drying up
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

NeoGenomics is trading at $10.46 per share, or 54.1x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than NEO.

Stocks We Like More

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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.