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. That said, here is one small-cap stock that could be the next 100 bagger and two best left ignored.
Two Small-Cap Stocks to Sell:
Mattel (MAT)
Market Cap: $4.39 billion
Known for the creation of iconic toys such as Barbie and Hotwheels, Mattel (NASDAQ: MAT) is a global children's entertainment company specializing in the design and production of consumer products.
Why Do We Steer Clear of MAT?
- 2% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $14.87 per share, Mattel trades at 11.8x forward P/E. Read our free research report to see why you should think twice about including MAT in your portfolio.
FactSet (FDS)
Market Cap: $8.45 billion
Founded in 1978 when financial data was still primarily delivered through paper reports, FactSet (NYSE: FDS) provides financial data, analytics, and technology solutions that investment professionals use to research, analyze, and manage their portfolios.
Why Does FDS Fall Short?
- Annual revenue growth of 5.6% over the last two years was below our standards for the financials sector
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 7.1% annually
FactSet is trading at $229 per share, or 12.6x forward P/E. Check out our free in-depth research report to learn more about why FDS doesn’t pass our bar.
One Small-Cap Stock to Buy:
Matador Resources (MTDR)
Market Cap: $7.03 billion
Operating primarily in the Delaware Basin where multiple oil-bearing layers lie stacked thousands of feet deep, Matador Resources (NYSE: MTDR) explores for, drills, and produces oil and natural gas from underground rock formations in New Mexico and Texas.
Why Should You Buy MTDR?
- Annual revenue growth of 26.6% over the last ten years was superb and indicates its market share increased during this cycle
- Attractive asset base leads to wonderful unit economics and a best-in-class gross margin of 81.9%
- Strong free cash flow margin of 23.2% enables it to reinvest or return capital consistently
Matador Resources’s stock price of $56.96 implies a valuation ratio of 6.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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