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.

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. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Sally Beauty (SBH)

Market Cap: $825.8 million

Catering to both everyday consumers as well as salon professionals, Sally Beauty (NYSE: SBH) is a retailer that sells salon-quality beauty products such as makeup and haircare products.

Why Do We Avoid SBH?

1. Store closures and poor same-store sales reveal weak demand and a push toward operational efficiency
2. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
3. Modest revenue base of $3.72 billion gives it less fixed cost leverage and fewer distribution channels than larger companies

At $8.09 per share, Sally Beauty trades at 4.3x forward price-to-earnings. If you’re considering SBH for your portfolio, see our FREE research report to learn more.

Jack in the Box (JACK)

Market Cap: $437.7 million

Delighting customers since its inception in 1951, Jack in the Box (NASDAQ: JACK) is a distinctive fast-food chain known for its bold flavors, innovative menu items, and quirky marketing.

Why Are We Wary of JACK?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
2. Efficiency has decreased over the last year as its operating margin fell by 10.6 percentage points
3. 10× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Jack in the Box is trading at $23.22 per share, or 4.2x forward price-to-earnings. Read our free research report to see why you should think twice about including JACK in your portfolio.

Matrix Service (MTRX)

Market Cap: $299.8 million

Founded in Oklahoma, Matrix Service (NASDAQ: MTRX) provides engineering, fabrication, construction, and maintenance services primarily to the energy and industrial markets.

Why Do We Think MTRX Will Underperform?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 12.9% annually over the last five years
2. Gross margin of 4.4% is below its competitors, leaving less money to invest in areas like marketing and R&D
3. Issuance of new shares over the last five years caused its earnings per share to fall by 22.5% annually, even worse than its revenue declines

Matrix Service’s stock price of $10.36 implies a valuation ratio of 15.8x forward price-to-earnings. To fully understand why you should be careful with MTRX, check out our full research report (it’s free).

Stocks We Like More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free.