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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Cognex (CGNX)
Market Cap: $7.82 billion
Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ:CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.
Why Do We Think Twice About CGNX?
- Muted 2% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Free cash flow margin dropped by 15.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital suggest its historical profit centers are aging
Cognex’s stock price of $46.98 implies a valuation ratio of 44.8x forward P/E. Check out our free in-depth research report to learn more about why CGNX doesn’t pass our bar.
Cohen & Steers (CNS)
Market Cap: $3.39 billion
Founded in 1986 as a pioneer in real estate investment trusts (REITs), Cohen & Steers (NYSE:CNS) is an investment manager specializing in real estate securities, infrastructure, real assets, and preferred securities for institutional and individual investors.
Why Does CNS Worry Us?
- Sales trends were unexciting over the last four years as its 2.2% annual growth was below the typical financials company
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 2.2% annually while its revenue grew
At $66.49 per share, Cohen & Steers trades at 20.8x forward P/E. Dive into our free research report to see why there are better opportunities than CNS.
BOK Financial (BOKF)
Market Cap: $7.31 billion
Tracing its roots back to 1910 when Oklahoma was still a young state, BOK Financial (NASDAQ:BOKF) is a regional bank holding company that provides commercial banking, consumer banking, and wealth management services across eight states in the central and southwestern US.
Why Are We Hesitant About BOKF?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- 3.6% annual net interest income growth over the last five years was slower than its banking peers
- 47.7 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the firm’s willingness to accept lower profitability to defend its market position
BOK Financial is trading at $114.89 per share, or 1.2x forward P/B. To fully understand why you should be careful with BOKF, check out our full research report (it’s free for active Edge members).
High-Quality Stocks for All Market Conditions
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