Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.

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 swipe left on and some alternatives you should look into instead.

Health Catalyst (HCAT)

Market Cap: $288.6 million

Founded by healthcare professionals Tom Burton and Steve Barlow in 2008, Health Catalyst (NASDAQ:HCAT) provides data and analytics technology to healthcare organizations, enabling them to improve care and lower costs.

Why Are We Cautious About HCAT?

1. Sales trends were unexciting over the last three years as its 8.2% annual growth was well below the typical software company
2. Gross margin of 46.2% reflects its high servicing costs
3. Suboptimal cost structure is highlighted by its history of operating losses

Health Catalyst is trading at $4.13 per share, or 0.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than HCAT.

Paycor (PYCR)

Market Cap: $4.06 billion

Founded in 1990 in Cincinnati, Ohio, Paycor (NASDAQ: PYCR) provides software for small businesses to manage their payroll and HR needs in one place.

Why Does PYCR Fall Short?

1. Gross margin of 66% is below its competitors, leaving less money to invest in areas like marketing and R&D
2. Historical operating losses point to an inefficient cost structure
3. Free cash flow margin is projected to show no improvement next year

Paycor’s stock price of $22.37 implies a valuation ratio of 5.2x forward price-to-sales. If you’re considering PYCR for your portfolio, see our FREE research report to learn more.

Sealed Air (SEE)

Market Cap: $4.31 billion

Founded in 1960, Sealed Air Corporation (NYSE: SEE) specializes in the development and production of protective and food packaging solutions, serving a variety of industries.

Why Do We Pass on SEE?

1. Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 12.3% annually, worse than its revenue
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $29.72 per share, Sealed Air trades at 9.5x forward price-to-earnings. Check out our free in-depth research report to learn more about why SEE doesn’t pass our bar.

Stocks We Like More

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