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.
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. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
RH (RH)
Market Cap: $3.69 billion
Formerly known as Restoration Hardware, RH (NYSE:RH) is a specialty retailer that exclusively sells its own brand of high-end furniture and home decor.
Why Are We Wary of RH?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
RH is trading at $197.47 per share, or 17.6x forward P/E. Dive into our free research report to see why there are better opportunities than RH.
The Pennant Group (PNTG)
Market Cap: $824.2 million
Spun off from The Ensign Group in 2019 to focus on non-skilled nursing healthcare services, Pennant Group (NASDAQ:PNTG) operates home health, hospice, and senior living facilities across 13 western and midwestern states, serving patients of all ages including seniors.
Why Are We Hesitant About PNTG?
- Modest revenue base of $748.2 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Free cash flow margin shrank by 5.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $23.91 per share, The Pennant Group trades at 21x forward P/E. Read our free research report to see why you should think twice about including PNTG in your portfolio.
Diebold Nixdorf (DBD)
Market Cap: $2.18 billion
With roots dating back to 1859 and a presence in over 100 countries, Diebold Nixdorf (NYSE:DBD) provides automated self-service technology, software, and services that help banks and retailers digitize their customer transactions.
Why Does DBD Worry Us?
- Sales tumbled by 2.9% annually over the last five years, showing market trends are working against its favor during this cycle
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Push for growth has led to negative returns on capital, signaling value destruction
Diebold Nixdorf’s stock price of $58.62 implies a valuation ratio of 14.9x forward P/E. If you’re considering DBD for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Trump’s April 2024 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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