Given the riskier and more speculative nature of small-cap stocks, if you own a stock in this category, it’s important to keep an eye out for signs that said name has become one of the small-cap stocks to sell.
A key warning sign to look out for is insider selling. That is the selling of shares by either large investors in the company, or by the company’s top executives (CEO, CFO, COO, etc). Sure, insiders sell for a myriad of reasons, such as asset diversification and estate planning. But while modest-to-moderate insider selling isn’t necessarily a sign to stay away, large-scale insider selling is still a red flag. An insider cashing out to that degree suggests little confidence in a company’s future prospects.
Taking a look at small-caps with heavy insider selling (as measured by Finviz), I have found seven small-cap stocks to sell for this reason. With each of them, company insiders and large shareholders have (in recent months) trimmed and/or severely decreased their ownership positions.
Hims & Hers Health (HIMS)
As you may recall, Hims & Hers Health (NYSE:HIMS) was one of the companies that went public via the special purpose acquisition company (or SPAC) route during 2021, only to see its shares tank during the “SPAC Wipeout” of 2021 and 2023.
Over the past year, however, HIMS stock has bounced back, and a few months ago, shares in this telehealth and wellness products provider were back above their original SPAC price of $10 per share. That said, throughout this recovery, COO Melissa Baird has taken the opportunity to sell a fair amount of her personal position in Hims & Hers.
Back in March, major shareholder Redpoint Ventures seized the opportunity as well. While the company’s operating results continue to improve, all of this insider selling could indicate that HIMS is one of the small-cap stocks to avoid. After bouncing back, there may be little left in the way of upside.
Opendoor Technologies (OPEN)
Trading at just under $3 per share, Opendoor Technologies (NASDAQ:OPEN) may look like a low-priced way to wager on a sooner-than-expected housing market recovery. If interest rates start coming down, and housing supplies remain tight this iBuyer, or large-scale house flipper, could make a strong comeback.
Yet while a recovery for OPEN stock could happen, it doesn’t appear that company insiders are all too confident in such an outcome. Instead of buying low to potentially sell high later, company insiders like CEO Carrie Wheeler and co-founder Eric Wu have sold millions of dollars worth of shares.
Opendoor may not be at risk of a total wipeout, even if the housing slowdown persists, but based on this insider selling, it’s possible that management believes the company is a long way away from making a recovery. With this, you may want to consider it one of the small-cap stocks to sell.
Right now, OneSpaWorld (NASDAQ:OSW) is one of the small-cap stocks investors are selling. Notice that I said “investors” not “insiders.” Rather, it’s a major investor (Steiner Leisure) that has decided to cash out in a big way recently.
In 2020, when cruise ships suspended operations due to Covid-19, severely affecting OneSpaWorld’s business, Steiner led a $75 million funding round that provided the capital needed to keep it afloat. Flash forward to now. With OSW stock now back to double-digit prices, Steiner has unloaded much of its position, through a secondary offering.
OSW has only pulled back moderately on this news. As InvestorPlace’s Josh Enomoto recently pointed out, the sell-side community views the stock as a “strong buy.” Nevertheless, you may still want to take Steiner’s selling into account before buying/holding a position. This may be a sign it’s not “full steam ahead” from here for OSW.
Sun Country Airlines (SNCY)
Sun Country Airlines (NASDAQ:SNCY) is an ultra-low-cost carrier specializing in seasonal flights to tourist destinations. SNCY had a successful IPO in 2021. The “revenge travel” trend made shares an attractive buy in the market’s eyes.
However, much like this trend, enthusiasm for SNCY stock has since cooled down. Of greater concern, though, is the fact insiders and major shareholders are heading for the exits. CEO Jude Bricker has sold off much of his personal position. Major shareholder Apollo Global Management (NYSE:APO) has also trimmed its position this year.
Apollo’s sales may have to do with regulatory scrutiny related to its ownership of stakes in multiple carriers but keep in mind the private equity firm has been cashing out of Sun Country for years. Add in other possible concerns, like sluggish airline booking demand, and SNCY may just well be one of the small-cap stocks to sell.
Stock image provider Shutterstock (NYSE:SSTK) has traded wildly in recent years. Most recently, the generative artificial intelligence (or AI) trend briefly spiked shares to elevated prices between January and May. SSTK stock investors had the opportunity to sell into this strength, and Executive Chairman Jonathan Oringer did just that, selling millions of dollars worth of shares during this time frame. The question now is that, after coughing back its gains related to “AI mania,” do other factors outweigh Oringer’s selling?
Perhaps. There may be more hype than substance regarding Shutterstock’s exposure to the rise of AI-generated images and video. Still, even if this trend fails to serve as a growth catalyst, SSTK appears reasonably-priced, at around 11.5 times forward earnings. Shares also sport a 2.29% forward dividend yield. Despite being one of the small-cap stocks insiders are selling, SSTK may be worthy of a closer look.
Sterling Check (STER)
It may seem too late to say that Sterling Check (NASDAQ:STER) is one of the small-cap stocks to sell, due to selling by insiders. Shares in this background and identity verification services provider have already tumbled lower, on insider selling-related news.
Earlier this month, the company announced that affiliates of Goldman Sachs (NYSE:GS), which owns a large position in STER stock, planned to sell shares via a secondary offering. Long regarded as some of the smartest among the “smart money” set, initially, you may be hesitant to buy what Goldman Sachs is selling. However, the perception that Goldman’s selling is a reason to stay away could be an overreaction. Last week, a Seeking Alpha contributor laid out the bull case for STER. In a nutshell, this commentator believes that there is a strong chance Sterling’s profit margins improve going forward, driving a big jump in STER’s valuation.
Warby Parker (WRBY)
Members of Warby Parker’s (NYSE:WRBY) C-suite have not been heavily engaging in insider selling, but a large shareholder, Durable Capital Partners, has since the start of the year steadily trimmed its position in the eyewear maker. Having said that, it’s not so much Durable’s steady insider selling that makes Warby Parker one of the small-cap stocks to sell. Instead, it’s possible reasons behind Durable’s decision to take some risk off the time. Based on Warby Parker’s fundamentals, there are many concerns to be had.
Shares currently trade for 99 times forward earnings. At the same time, there may be a high level of uncertainty about the company’s future results. While forecasts call for positive earnings per share (or EPS) this year, Warby Parker has continued to report negative quarterly earnings. Taking this into account, it may in hindsight prove wise to follow Durable’s lead today and sell.
On the date of publication, Thomas Niel 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.