1 Small-Cap Stock with Exciting Potential and 2 We Find Risky

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.

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 is one small-cap stock that could be the next big thing and two best left ignored.

Two Small-Cap Stocks to Sell:

Cal-Maine (CALM)

Market Cap: $3.78 billion

Known for brands such as Egg-Land’s Best and Land O’ Lakes, Cal-Maine (NASDAQ:CALM) produces, packages, and distributes eggs.

Why Does CALM Give Us Pause?

1. Muted 4.3% annual revenue growth over the last three years shows its demand lagged behind its consumer staples peers
2. Estimated sales decline of 22.2% for the next 12 months implies a challenging demand environment
3. Efficiency has decreased over the last year as its operating margin fell by 8.1 percentage points

At $84.68 per share, Cal-Maine trades at 27.8x forward P/E. To fully understand why you should be careful with CALM, check out our full research report (it’s free).

Centrus Energy (LEU)

Market Cap: $3.12 billion

Operating the only active U.S. facility licensed to produce high-assay low-enriched uranium (HALEU) for next-generation reactors, Centrus Energy (NYSE:LEU) supplies enriched uranium, the fissile component needed to produce fuel for nuclear power reactors.

Why Do We Avoid LEU?

1. Modest revenue base of $452.3 million gives it less fixed cost leverage and fewer distribution channels than larger companies
2. Costly operations and weak unit economics result in an inferior gross margin of 32.5% that must be offset through higher production volumes
3. Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 38.7 percentage points

Centrus Energy’s stock price of $173.55 implies a valuation ratio of 37.5x forward P/E. Check out our free in-depth research report to learn more about why LEU doesn’t pass our bar.

One Small-Cap Stock to Watch:

Maximus (MMS)

Market Cap: $3.26 billion

With nearly 50 years of experience translating public policy into operational programs that serve millions of citizens, Maximus (NYSE:MMS) provides operational services, clinical assessments, and technology solutions to government agencies in the U.S. and internationally.

Why Does MMS Stand Out?

1. Adjusted operating margin expanded by 2.6 percentage points over the last five years as it scaled and became more efficient
2. Share repurchases have amplified shareholder returns as its annual earnings per share growth of 21.2% exceeded its revenue gains over the last two years
3. Improving returns on capital reflect management’s ability to monetize investments

Maximus is trading at $56.67 per share, or 6.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

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