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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
The Cheesecake Factory (CAKE)
Market Cap: $2.47 billion
Celebrated for its delicious (and free) brown bread, gigantic portions, and delectable desserts, Cheesecake Factory (NASDAQ:CAKE) is an iconic American restaurant chain that also owns and operates a portfolio of separate restaurant brands.
Why Are We Cautious About CAKE?
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Poor expense management has led to an operating margin of 4.1% that is below the industry average
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Underwhelming -0.3% return on capital reflects management’s difficulties in finding profitable growth opportunities
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High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $47.30 per share, The Cheesecake Factory trades at 12.9x forward price-to-earnings. Check out our free in-depth research report to learn more about why CAKE doesn’t pass our bar .
Smith & Wesson (SWBI)
Market Cap: $412.3 million
With a history dating back to 1852, Smith & Wesson (NASDAQ:SWBI) is a firearms manufacturer known for its handguns and rifles.
Why Are We Out on SWBI?
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Flat sales over the last five years suggest it must innovate and find new ways to grow
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Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
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Diminishing returns on capital suggest its earlier profit pools are drying up
Smith & Wesson is trading at $9.48 per share, or 16.7x forward price-to-earnings. If you’re considering SWBI for your portfolio, see our FREE research report to learn more .
Fluence Energy (FLNC)
Market Cap: $479.9 million
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ:FLNC) helps store renewable energy sources with battery systems.
Why Is FLNC Not Exciting?
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Gross margin of 6.2% reflects its high production costs
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5.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
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Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Fluence Energy’s stock price of $3.60 implies a valuation ratio of 4.1x forward price-to-earnings. Read our free research report to see why you should think twice about including FLNC in your portfolio, it’s free .
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 9 Market-Beating Stocks . This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free .