Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.

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.

Krispy Kreme (DNUT)

Market Cap: $631.7 million

Famous for its Original Glazed doughnuts and parent company of Insomnia Cookies, Krispy Kreme (NASDAQ: DNUT) is one of the most beloved and well-known fast-food chains in the world.

Why Are We Out on DNUT?

1. Earnings per share have dipped by 38.7% annually over the past three years, which is concerning because stock prices follow EPS over the long term
2. Cash burn has widened over the last year, making us question whether it can reliably generate shareholder value
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

At $3.72 per share, Krispy Kreme trades at 4.2x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including DNUT in your portfolio.

John Bean (JBTM)

Market Cap: $7.60 billion

Tracing back to its invention of the mechanical milk bottle filler in 1884, John Bean (NYSE: JBT) designs, manufactures, and sells equipment used for food processing and aviation.

Why Are We Cautious About JBTM?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 6.1 percentage points
3. ROIC of 6.8% reflects management’s challenges in identifying attractive investment opportunities

John Bean is trading at $146.20 per share, or 21.8x forward P/E. Dive into our free research report to see why there are better opportunities than JBTM.

Capital Southwest (CSWC)

Market Cap: $1.25 billion

Originally founded in 1961 as a venture capital investor that helped launch Texas Instruments, Capital Southwest (NASDAQ: CSWC) is a business development company that provides debt and equity financing to middle-market companies primarily in the United States.

Why Does CSWC Fall Short?

1. Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable

Capital Southwest’s stock price of $22.42 implies a valuation ratio of 9.6x forward P/E. If you’re considering CSWC for your portfolio, see our FREE research report to learn more.

High-Quality Stocks for All Market Conditions

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