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.
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. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Five9 (FIVN)
Market Cap: $2.00 billion
Started in 2001, Five9 (NASDAQ: FIVN) offers software-as-a-service that makes it easier for companies to set up and efficiently run call centers to offer more tailored customer support.
Why Does FIVN Give Us Pause?
- Annual revenue growth of 16.5% over the last three years was below our standards for the software sector
- Estimated sales growth of 8.1% for the next 12 months implies demand will slow from its three-year trend
- Sky-high servicing costs result in an inferior gross margin of 55.3% that must be offset through increased usage
Five9 is trading at $25.86 per share, or 1.9x forward price-to-sales. Check out our free in-depth research report to learn more about why FIVN doesn’t pass our bar.
Proto Labs (PRLB)
Market Cap: $1.06 billion
Pioneering the concept of online quoting and manufacturing for custom prototypes and low-volume production parts, Proto Labs (NYSE: PRLB) offers injection molding, 3D printing, and sheet metal fabrication for manufacturers in various industries.
Why Do We Avoid PRLB?
- Annual revenue growth of 2.4% over the last two years was below our standards for the industrials sector
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 7.6 percentage points
- Earnings per share have contracted by 9.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
Proto Labs’s stock price of $44.36 implies a valuation ratio of 29.8x forward P/E. Read our free research report to see why you should think twice about including PRLB in your portfolio.
Bausch + Lomb (BLCO)
Market Cap: $5.11 billion
With a nearly 170-year history dedicated to vision care and eye health innovation, Bausch + Lomb (NYSE: BLCO) develops and manufactures a comprehensive range of eye health products including contact lenses, pharmaceuticals, surgical devices, and consumer eye care solutions.
Why Does BLCO Worry Us?
- Annual revenue growth of 7.2% over the last five years was below our standards for the healthcare sector
- 23.9 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
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $14.44 per share, Bausch + Lomb trades at 17.1x forward P/E. Dive into our free research report to see why there are better opportunities than BLCO.
Stocks We Like More
Donald Trump’s April 2024 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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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