3 Small-Cap Stocks Walking a Fine Line

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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Gray Television (GTN)

Market Cap: $417.4 million

Specializing in local media coverage, Gray Television (NYSE:GTN) is a broadcast company supplying digital media to various markets in the United States.

Why Do We Pass on GTN?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Projected sales decline of 11.8% for the next 12 months points to an even tougher demand environment ahead
3. Free cash flow margin is forecasted to shrink by 10 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors

Gray Television is trading at $4.30 per share, or 0.6x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than GTN.

Norwegian Cruise Line (NCLH)

Market Cap: $8.36 billion

With amenities like a full go-kart race track built into its ships, Norwegian Cruise Line (NYSE:NCLH) is a premier global cruise company.

Why Do We Avoid NCLH?

1. Number of passenger cruise days has disappointed over the past two years, indicating weak demand for its offerings
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 18.7% annually while its revenue grew
3. High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Norwegian Cruise Line’s stock price of $19.01 implies a valuation ratio of 9.1x forward price-to-earnings. Check out our free in-depth research report to learn more about why NCLH doesn’t pass our bar.

Adtalem (ATGE)

Market Cap: $3.55 billion

Formerly known as DeVry Education Group, Adtalem Global Education (NYSE:ATGE) is a global provider of workforce solutions and educational services.

Why Are We Cautious About ATGE?

1. Muted 8.2% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
2. Estimated sales growth of 6.4% for the next 12 months implies demand will slow from its two-year trend
3. Low returns on capital reflect management’s struggle to allocate funds effectively

At $94.61 per share, Adtalem trades at 15.3x forward price-to-earnings. If you’re considering ATGE for your portfolio, see our FREE research report to learn more.

Stocks We Like More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. 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 United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.