This has been a volatile year for investors, especially for those playing in the small-cap space. The S&P 500 and Nasdaq faced an extended selloff and even entered “correction” territory between August and November, as investors worried about inflation and the impact of the Federal Reserve’s rate hikes.
Fortunately, the recent October CPI report and labor market data showed extended signs of cooling. This has eased some of the pressure on the Fed and raised hopes that the central bank is done with its tightening cycle. As a result, the S&P 500 and Nasdaq-100 rallied in November, recovering much of their losses.
While this may be a good time for some small-cap stocks, not all of them will thrive in the current environment. Many small-cap stocks will continue to struggle.
Below are three terrible small-cap stocks that will do just that.
ProFrac Holdings (ACDC)
ProFrac (NASDAQ:ACDC) is a provider of hydraulic fracturing services to oil and gas producers in North America. Last year, the company was able to increase revenue by 216% on a year-over-year basis, primarily driven by an increase in customer activity for the company’s stimulation services, which help to stimulate the flow of oil and gas. The main driver of this incredible growth was the rise of oil and gas prices throughout 2022, prompted by the Russia-Ukraine war.
Unfortunately, the company has struggled in 2023 with YOY revenue growth seriously compressing in both the second and third quarters. Second-quarter revenue increased by only 20%, below the company’s usual triple-digit growth figures, and third-quarter revenue declined by 17%. The sharp decline in the third quarter was primarily attributed to a lower average active fleet count and associated material sales compared to the second quarter.
Demand for fracking services is probably not going to reach the highs that it did in 2022. As a consequence, ProFrac will perhaps continue to find it difficult to properly utilize its assets and revenue growth will likely experience further compression.
TELUS International (TIXT)
TELUS International (NYSE:TIXT) is a subsidiary of TELUS Corporation (NYSE:TU) that provides digital solutions and customer experience services to global clients. The company has been growing rapidly in recent years, thanks to its acquisitions of several digital agencies and platforms.
However, similar to a number of other digital services companies, TELUS has found it difficult to increase revenue growth ever since the Fed began raising interest rates in early 2022. Revenue growth over the last 12 months has only climbed 8.5%, underperforming the double-digit growth TELUS boasted in prior years.
Not to mention, TELUS International faces fierce competition from other digital service providers, such as Accenture (NYSE:ACN) and Cognizant (NASDAQ:CTSH). It’s difficult to see how the company will grow considerably in the coming quarters.
Planet Labs (PL)
Planet Labs (NYSE:PL) is another small-cap stock investors should consider avoiding. The company specializes in the construction and launch of earth imaging satellites that generate imagery for governments and research scientists. Last year, Planet Labs reported $191 million in revenue for 2022, representing a 46% year-over-year increase from $131 million in 2021. However, Planet Labs’ notable revenue growth has started to decline in 2023. Its most recent second-quarter earnings report showed revenue up only 11% YOY.
While third quarter results come out today, investors should not expect too much. The company has missed earnings estimates in both the first and second quarters of this year. Moreover, while Planet Labs was operating better in prior years, the global economy is likely to continue slowing in 2024, potentially jeopardizing demand for Planet Labs’ product in future quarters.
Shares have plummeted more than 40% in the year to date and investors should dump this stock before things get any worse.
On the date of publication, Tyrik Torres did not have (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.
