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.

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.

Alarm.com (ALRM)

Market Cap: $2.45 billion

Processing over 325 billion data points annually from more than 150 million connected devices, Alarm.com (NASDAQ: ALRM) provides cloud-based platforms that enable residential and commercial property owners to remotely monitor and control their security, video, energy, and other connected devices.

Why Do We Steer Clear of ALRM?

1. Average billings growth of 7% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. Estimated sales growth of 3.7% for the next 12 months implies demand will slow from its two-year trend
3. Operating margin expanded by 1.9 percentage points over the last year as it scaled and became more efficient

Alarm.com is trading at $49.06 per share, or 2.8x forward price-to-sales. To fully understand why you should be careful with ALRM, check out our full research report (it’s free).

Gibraltar (ROCK)

Market Cap: $1.50 billion

Gibraltar (NASDAQ: ROCK) makes renewable energy, agriculture technology and infrastructure products. Its mission statement is to make everyday living more sustainable.

Why Do We Pass on ROCK?

1. Annual sales declines of 7.4% for the past two years show its products and services struggled to connect with the market during this cycle
2. Sales are projected to be flat over the next 12 months and imply weak demand
3. Earnings per share lagged its peers over the last two years as they only grew by 3.1% annually

At $50.72 per share, Gibraltar trades at 12.5x forward P/E. Read our free research report to see why you should think twice about including ROCK in your portfolio.

L.B. Foster (FSTR)

Market Cap: $298.5 million

Founded with a $2,500 loan, L.B. Foster (NASDAQ: FSTR) is a provider of products and services for the transportation and energy infrastructure sectors, including rail products, construction materials, and coating solutions.

Why Are We Cautious About FSTR?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Performance over the past five years was negatively impacted by new share issuances as its earnings per share fell by 31.4% annually while its revenue was flat
3. Underwhelming 3.4% return on capital reflects management’s difficulties in finding profitable growth opportunities

L.B. Foster’s stock price of $28.96 implies a valuation ratio of 8.6x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than FSTR.

Stocks We Like More

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. Check 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 244% over the last five years (as of June 30, 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.