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.
Prosperity Bancshares (PB)
Market Cap: $7.04 billion
With a network of banking centers spanning the Lone Star State and beyond, Prosperity Bancshares (NYSE: PB) operates full-service banking locations throughout Texas and Oklahoma, offering a wide range of financial products and services to businesses and consumers.
Why Should You Dump PB?
- 2% annual net interest income growth over the last five years was slower than its banking peers
- Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat
- Estimated tangible book value per share decline of 1.6% for the next 12 months implies a challenging profitability environment
At $68.48 per share, Prosperity Bancshares trades at 0.8x forward P/B. Check out our free in-depth research report to learn more about why PB doesn’t pass our bar.
Kodiak Gas Services (KGS)
Market Cap: $7.32 billion
Dominating the Permian Basin with a fleet focused on large horsepower units exceeding 1,000 horsepower each, Kodiak Gas Services (NYSE: KGS) operates compression equipment that maintains natural gas pressure for production, gathering, and transportation.
Why Does KGS Worry Us?
- Smaller revenue base of $1.32 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 3.7 percentage points
- Low free cash flow margin of 5.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Kodiak Gas Services is trading at $74.18 per share, or 4.1x forward price-to-sales. If you’re considering KGS for your portfolio, see our FREE research report to learn more.
Seadrill (SDRL)
Market Cap: $3.11 billion
Operating in water depths reaching 12,000 feet below the surface, Seadrill (NYSE: SDRL) owns and operates drillships and semi-submersible rigs that drill oil and gas wells in deepwater offshore locations.
Why Do We Think SDRL Will Underperform?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 9.6% annually over the last ten years
- Gross margin of 34.8% is below its competitors, leaving less money to invest in exploration and production
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Seadrill’s stock price of $51.30 implies a valuation ratio of 37.8x forward P/E. To fully understand why you should be careful with SDRL, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren't just high-quality businesses. Something is happening with them right now. Elite fundamentals meeting near-term momentum - both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week's Strong Momentum stocks - FREE. Get Our Strong Momentum Stocks for Free HERE.
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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
