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. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Zeta (ZETA)
Market Cap: $3.43 billion
Co-founded by former Apple CEO John Sculley, Zeta Global (NYSE: ZETA) provides software and data analytics tools that help companies market their products to billions of customers.
Why Does ZETA Fall Short?
- Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 97% net revenue retention rate
- Gross margin of 60.3% reflects its relatively high servicing costs
- Historical operating losses show it had an inefficient cost structure while scaling
Zeta is trading at $14.85 per share, or 2.9x forward price-to-sales. Check out our free in-depth research report to learn more about why ZETA doesn’t pass our bar.
Steven Madden (SHOO)
Market Cap: $1.81 billion
As seen in the infamous Wolf of Wall Street movie, Steven Madden (NASDAQ: SHOO) is a fashion brand famous for its trendy and innovative footwear, appealing to a young and style-conscious audience.
Why Are We Hesitant About SHOO?
- Lackluster 3.7% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Earnings per share lagged its peers over the last five years as they only grew by 6.8% annually
- Poor free cash flow margin of 9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $25.30 per share, Steven Madden trades at 9.8x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than SHOO.
Knight-Swift Transportation (KNX)
Market Cap: $7.19 billion
Covering 1.6 billion loaded miles in 2023 alone, Knight-Swift Transportation (NYSE: KNX) offers less-than-truckload and full truckload delivery services.
Why Are We Out on KNX?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Free cash flow margin dropped by 8.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Knight-Swift Transportation’s stock price of $45 implies a valuation ratio of 22.2x forward price-to-earnings. Read our free research report to see why you should think twice about including KNX in your portfolio.
Stocks We Like More
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat by checking out 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 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.
