The Federal Reserve signaling interest rates could stay elevated for the long term coupled with relentless political infighting in Washington has brought another jolt of volatility to equities. This has led to this list of micro-cap stocks to sell.
It appears we are moving into a phase of equities investing wherein traders and analysts are likely to better scrutinize company financials and forgo placing money in stocks that have dim growth prospects. This could be bad news for micro-cap stocks, which are often speculative and risky and may not have a proven track record or a sustainable business model.
Below are three micro-cap stocks that investors should dump before they suffer more losses.
Zynex (NASDAQ:ZYXI) is a medical device manufacturer that specializes in electrotherapy products for pain management, rehabilitation, and neurological diagnosis. It sells its products directly to patients through prescriptions from physicians and claims to have a large and growing market opportunity.
Zynex’s revenues had a bump in Y/Y growth during the pandemic, but since inflation rose to new heights last year, top-line growth has slowed significantly. All of this proves is, that Zynex’s electrotherapy products have yet to prove their growth potential in an already competitive market.
A number of controversies, which include engaging in improper billing practices and charging exorbitant prices, have also marred the medical device company’s reputation amongst its customer base and health insurance partners. Last year, United Health Care (UHC) decided to drop coverage of Zynex’s products. Even though management essentially shrugged off the loss of UHC, losing a major partner is never a good sign. Investors should sell their shares before Zynex’s performance worsens.
FARO Technologies (FARO)
Faro Technologies (NASDAQ:FARO) is a provider of 3D measurement and imaging solutions for various industries, such as construction, manufacturing, engineering, and public safety. In essence, the company designs hardware and software products that enable users to capture, analyze, and visualize spatial data. Unfortunately, Faro’s inconsistent revenue growth figures, again, speak to the inability to find a good product-market fit.
While 2021 revenues rebounded from their pandemic lows to rise 11.2% Y/Y, Faro saw total annual revenue in 2022 only increase 2.3% Likewise, gross margins have compressed since 2021. This helps make it one of those micro-cap stocks to sell.
Mixed earnings results in 2023 have not helped to lift shares either. In the first quarter, revenue came in above Wall Street’s estimates while EPS underperformed, sending shares down more than 40.0%. However, the second quarter results largely beat expectations. Still, shares have fallen 50.3% YTD, and investors should consider cutting their losses before things get worse.
The final entry, Gevo (NASDAQ:GEVO), produces renewable fuels that are derived from plant-based feedstocks, such as corn and wood waste. The company uses a proprietary technology that converts sugars into hydrocarbons that can be used as gasoline, jet fuel, or diesel. Gevo also claims to have a positive environmental impact and a large potential market, but building a business predicated on a noble cause does not necessarily translate to outstanding growth figures and profitability margins.
Revenue has been on the decline since 2019 and only started to pick up last year. Nonetheless, revenue figures are not even close to where they were prior to the pandemic. The renewable fuels company is also incapable of generating any meaningful gross margins from sales. With revenue growth so unpredictable and share value nearly halved since the start of the year, investors should steer clear of this stock.
On the date of publication, Tyrik Torres did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.