3 Small-Cap Stocks Skating on Thin Ice

February 27, 2025 at 08:01 AM EST

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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 avoid and some other investments you should consider instead.

BlackLine (BL)

Market Cap: $3.08 billion

Started in 2001 by software engineer Therese Tucker, one of the very few women founders who took their companies public, BlackLine (NASDAQ: BL) provides software for organizations to automate accounting and finance tasks.

Why Is BL Not Exciting?

Average billings growth of 6.7% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
Estimated sales growth of 7.4% for the next 12 months implies demand will slow from its three-year trend
Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year, suggesting its competitive moat may be under pressure

BlackLine is trading at $49 per share, or 5.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than BL.

Sportsman's Warehouse (SPWH)

Market Cap: $57.7 million

A go-to destination for individuals passionate about hunting, fishing, camping, hiking, shooting sports, and more, Sportsman's Warehouse (NASDAQ: SPWH) is an American specialty retailer offering a diverse range of active gear, equipment, and apparel.

Why Do We Pass on SPWH?

Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
26× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Sportsman's Warehouse’s stock price of $1.61 implies a valuation ratio of 1.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SPWH in your portfolio.

Lindsay (LNN)

Market Cap: $1.44 billion

A pioneer in the field of center pivot and lateral move irrigation, Lindsay (NYSE: LNN) provides a variety of proprietary water management and road infrastructure products and services.

Why Do We Think Twice About LNN?

Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
Anticipated sales growth of 5.8% for the next year implies demand will be shaky
Earnings per share have dipped by 4.8% annually over the past two years, which is concerning because stock prices follow EPS over the long term

At $132.08 per share, Lindsay trades at 21.7x forward price-to-earnings. If you’re considering LNN for your portfolio, see our FREE research report to learn more.

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3 Small-Cap Stocks Skating on Thin Ice

BlackLine (BL)

Sportsman's Warehouse (SPWH)

Lindsay (LNN)

Stocks We Like More

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