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 avoid and some other investments you should consider instead.
BlackLine (BL)
Market Cap: $3.08 billion
Started in 2001 by software engineer Therese Tucker, one of the very few women founders who took their companies public, BlackLine (NASDAQ:BL) provides software for organizations to automate accounting and finance tasks.
Why Is BL Not Exciting?
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Average billings growth of 6.7% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
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Estimated sales growth of 7.4% for the next 12 months implies demand will slow from its three-year trend
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Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year, suggesting its competitive moat may be under pressure
BlackLine is trading at $49 per share, or 5.2x forward price-to-sales. To fully understand why you should be careful with BL, check out our full research report (it’s free) .
Sportsman's Warehouse (SPWH)
Market Cap: $57.7 million
A go-to destination for individuals passionate about hunting, fishing, camping, hiking, shooting sports, and more, Sportsman's Warehouse (NASDAQ:SPWH) is an American specialty retailer offering a diverse range of active gear, equipment, and apparel.
Why Do We Pass on SPWH?
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Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
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Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
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26× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Sportsman's Warehouse’s stock price of $1.61 implies a valuation ratio of 1.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SPWH in your portfolio, it’s free .
Lindsay (LNN)
Market Cap: $1.44 billion
A pioneer in the field of center pivot and lateral move irrigation, Lindsay (NYSE:LNN) provides a variety of proprietary water management and road infrastructure products and services.
Why Do We Think Twice About LNN?
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Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
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Anticipated sales growth of 5.8% for the next year implies demand will be shaky
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Earnings per share have dipped by 4.8% annually over the past two years, which is concerning because stock prices follow EPS over the long term
At $132.08 per share, Lindsay trades at 21.7x forward price-to-earnings. Check out our free in-depth research report to learn more about why LNN doesn’t pass our bar .
Stocks We Like More
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Take advantage of the rebound by checking out our Top 6 Stocks for this week . 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free .