Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
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.
Xponential Fitness (XPOF)
Market Cap: $279.1 million
Owner of CycleBar, Rumble, and Club Pilates, Xponential Fitness (NYSE: XPOF) is a boutique fitness brand offering diverse and specialized exercise experiences.
Why Is XPOF Not Exciting?
- Muted 14.3% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
- Poor expense management has led to operating losses
- Negative returns on capital show that some of its growth strategies have backfired
Xponential Fitness’s stock price of $8.30 implies a valuation ratio of 4.8x forward price-to-earnings. To fully understand why you should be careful with XPOF, check out our full research report (it’s free).
Scholastic (SCHL)
Market Cap: $474.2 million
Creator of the legendary Scholastic Book Fair, Scholastic (NASDAQ: SCHL) is an international company specializing in children's publishing, education, and media services.
Why Does SCHL Worry Us?
- Sales were flat over the last five years, indicating it's failed to expand its business
- Subpar operating margin of 3% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $17.48 per share, Scholastic trades at 10.3x forward price-to-earnings. If you’re considering SCHL for your portfolio, see our FREE research report to learn more.
Interface (TILE)
Market Cap: $1.10 billion
Pioneering carbon-neutral flooring since its founding in 1973, Interface (NASDAQ: TILE) is a global manufacturer of modular carpet tiles, luxury vinyl tile (LVT), and rubber flooring that specializes in carbon-neutral and sustainable flooring solutions.
Why Do We Steer Clear of TILE?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Issuance of new shares over the last five years caused its earnings per share to fall by 16% annually
- Underwhelming 7.4% return on capital reflects management’s difficulties in finding profitable growth opportunities
Interface is trading at $18.61 per share, or 12.5x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than TILE.
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 5 Growth Stocks for this month. 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 Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
