Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Amplitude (AMPL)

Market Cap: $950.8 million

Born from the realization that companies were flying blind when it came to understanding user behavior in their digital products, Amplitude (NASDAQ: AMPL) provides a digital analytics platform that helps businesses understand how people use their digital products to improve user experiences and drive revenue growth.

Why Are We Hesitant About AMPL?

1. Below-average net revenue retention rate of 102% suggests it has some trouble expanding within existing accounts
2. Poor expense management has led to operating margin losses
3. Low free cash flow margin of 6.8% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

Amplitude’s stock price of $7.28 implies a valuation ratio of 2.4x forward price-to-sales. If you’re considering AMPL for your portfolio, see our FREE research report to learn more.

Planet Fitness (PLNT)

Market Cap: $5.27 billion

Founded by two brothers who purchased a struggling gym, Planet Fitness (NYSE: PLNT) is a gym franchise that caters to casual fitness users by providing a friendly and inclusive atmosphere.

Why Are We Out on PLNT?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 3 percentage points
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

At $66.64 per share, Planet Fitness trades at 19x forward P/E. Read our free research report to see why you should think twice about including PLNT in your portfolio.

OPENLANE (OPLN)

Market Cap: $3.33 billion

Facilitating the sale of approximately 1.3 million used vehicles in 2023, OPENLANE (NYSE: OPLN) operates digital marketplaces that connect sellers and buyers of used vehicles across North America and Europe, facilitating wholesale transactions.

Why Are We Cautious About OPLN?

1. Annual sales declines of 2.4% for the past five years show its products and services struggled to connect with the market during this cycle
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.6 percentage points
3. 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

OPENLANE is trading at $31.43 per share, or 23.9x forward P/E. Check out our free in-depth research report to learn more about why OPLN doesn’t pass our bar.

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