3 Small-Cap Stocks Walking a Fine Line

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

Torrid (CURV)

Market Cap: $137.3 million

Promoting a message of body positivity and inclusiveness, Torrid Holdings (NYSE:CURV) is a plus-size women’s apparel and accessories retailer.

Why Should You Sell CURV?

Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience Free cash flow margin shrank by 7.9 percentage points over the last year, suggesting the company is consuming more capital to stay competitive Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $1.38 per share, Torrid trades at 7.5x forward EV-to-EBITDA. To fully understand why you should be careful with CURV, check out our full research report (it’s free).

Rush Enterprises (RUSHA)

Market Cap: $5.28 billion

Headquartered in Texas, Rush Enterprises (NASDAQ:RUSH.A) provides truck-related services and solutions, including sales, leasing, parts, and maintenance for commercial vehicles.

Why Are We Wary of RUSHA?

Customers postponed purchases of its products and services this cycle as its revenue declined by 4% annually over the last two years Earnings per share have dipped by 8.5% annually over the past two years, which is concerning because stock prices follow EPS over the long term Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Rush Enterprises’s stock price of $68.86 implies a valuation ratio of 18x forward P/E. Check out our free in-depth research report to learn more about why RUSHA doesn’t pass our bar.

Dime Community Bancshares (DCOM)

Market Cap: $1.63 billion

With roots dating back to 1910 and a name that evokes the historic "dime savings banks" of America's past, Dime Community Bancshares (NASDAQ:DCOM) is a New York-based bank holding company that provides commercial banking and financial services to businesses and consumers throughout Greater Long Island.

Why Does DCOM Worry Us?

Net interest margin of 2.9% reflects its high servicing and capital costs Incremental sales over the last five years were much less profitable as its earnings per share fell by 1.1% annually while its revenue grew 5.9% annual tangible book value per share growth over the last two years was slower than its banking peers

Story Continues

Dime Community Bancshares is trading at $36.91 per share, or 1.1x forward P/B. If you’re considering DCOM for your portfolio, see our FREE research report to learn more.

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