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.
Olo (OLO)
Market Cap: $1.49 billion
Founded by Noah Glass, who wanted to get a cup of coffee faster on his way to work, Olo (NYSE: OLO) provides restaurants and food retailers with software to manage food orders and delivery.
Why Are We Hesitant About OLO?
- Bad unit economics and steep infrastructure costs are reflected in its gross margin of 54.7%, one of the worst among software companies
- Rapid expansion strategy came at the expense of operating margin profitability
- Low free cash flow margin of 7.4% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Olo is trading at $8.91 per share, or 4.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than OLO.
Trex (TREX)
Market Cap: $6.36 billion
Addressing the demand for aesthetically-pleasing and unique outdoor living spaces, Trex Company (NYSE: TREX) makes wood-alternative decking, railing, and patio furniture.
Why Are We Cautious About TREX?
- Annual revenue growth of 5.4% over the last two years was below our standards for the industrials sector
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Trex’s stock price of $59.29 implies a valuation ratio of 26.8x forward P/E. Read our free research report to see why you should think twice about including TREX in your portfolio.
AXIS Capital (AXS)
Market Cap: $7.73 billion
Founded in the aftermath of the 9/11 attacks when insurance capacity was scarce, AXIS Capital Holdings Limited (NYSE: AXS) is a global specialty insurer and reinsurer that provides coverage for complex risks across property, liability, professional lines, cyber, and other specialty markets.
Why Are We Wary of AXS?
- 3.8% annual revenue growth over the last five years was slower than its insurance peers
- 2.5% annual net premiums earned growth over the last two years was slower than its insurance peers
- ROE of 9.5% reflects management’s challenges in identifying attractive investment opportunities
At $98.23 per share, AXIS Capital trades at 1.3x forward P/B. Check out our free in-depth research report to learn more about why AXS doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
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 5 Strong Momentum Stocks for this week. 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-micro-cap company Kadant (+351% 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
