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 avoid and some other investments you should consider instead.
Market Cap: $759 million
Formed in 2011 with the merger of Membase and CouchOne, Couchbase (NASDAQ:BASE) is a database-as-a-service platform that allows enterprises to store large volumes of semi-structured data.
Why Are We Wary of BASE?
Couchbase’s stock price of $14.46 implies a valuation ratio of 3.3x forward price-to-sales. Check out our free in-depth research report to learn more about why BASE doesn’t pass our bar.
Market Cap: $3.49 billion
Started by brothers Ben and Moisey Uretsky, DigitalOcean (NYSE: DOCN) provides a simple, low-cost platform that allows developers and small and medium-sized businesses to host applications and data in the cloud.
Why Does DOCN Give Us Pause?
DigitalOcean is trading at $37.95 per share, or 4x forward price-to-sales. To fully understand why you should be careful with DOCN, check out our full research report (it’s free).
Market Cap: $560.9 million
Co-founded by actress Jessica Alba, The Honest Company (NASDAQ:HNST) sells diapers and wipes, skin care products, and household cleaning products.
Why Does HNST Worry Us?
At $5.12 per share, The Honest Company trades at 21.7x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including HNST in your portfolio, it’s free.
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 6 Stocks for this week. 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.