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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Petco (WOOF)
Market Cap: $700.3 million
Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ: WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.
Why Do We Steer Clear of WOOF?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Performance over the past three years was negatively impacted by new share issuances as its earnings per share fell by 42% annually while its revenue was flat
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $2.50 per share, Petco trades at 11.2x forward P/E. Check out our free in-depth research report to learn more about why WOOF doesn’t pass our bar.
The Cheesecake Factory (CAKE)
Market Cap: $3.07 billion
Celebrated for its delicious (and free) brown bread, gigantic portions, and delectable desserts, Cheesecake Factory (NASDAQ: CAKE) is an iconic American restaurant chain that also owns and operates a portfolio of separate restaurant brands.
Why Does CAKE Give Us Pause?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Estimated sales growth of 3.9% for the next 12 months implies demand will slow from its six-year trend
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
The Cheesecake Factory’s stock price of $61.51 implies a valuation ratio of 15.4x forward P/E. If you’re considering CAKE for your portfolio, see our FREE research report to learn more.
Insteel (IIIN)
Market Cap: $720.4 million
Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE: IIIN) provides steel wire reinforcing products for concrete.
Why Is IIIN Not Exciting?
- Annual revenue growth of 5.9% over the last two years was below our standards for the industrials sector
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.3 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
Insteel is trading at $37.14 per share, or 13.5x forward P/E. To fully understand why you should be careful with IIIN, check out our full research report (it’s free).
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check 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 244% over the last five years (as of June 30, 2025).
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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
