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: $807.6 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 Are We Out on WOOF?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Performance over the past three years was negatively impacted by new share issuances as its earnings per share fell by 38.6% annually while its revenue was flat
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $2.84 per share, Petco trades at 12.2x forward P/E. To fully understand why you should be careful with WOOF, check out our full research report (it’s free).
Redwire (RDW)
Market Cap: $1.82 billion
Based in Jacksonville, Florida, Redwire (NYSE:RDW) is a provider of systems and components used in space infrastructure.
Why Are We Wary of RDW?
- Historically negative EPS raises concerns for risk-averse investors and makes its earnings potential harder to gauge
- Free cash flow margin dropped by 28.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Redwire is trading at $9.23 per share, or 497.1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why RDW doesn’t pass our bar.
WSFS Financial (WSFS)
Market Cap: $3.75 billion
Founded in 1832 as Wilmington Savings Fund Society and one of the oldest banks in America still operating under its original name, WSFS Financial (NASDAQ:WSFS) operates a community banking and wealth management franchise primarily serving customers in the Mid-Atlantic region through its main subsidiary, WSFS Bank.
Why Is WSFS Not Exciting?
- Annual net interest income growth of 9.7% over the last five years was below our standards for the banking sector
- Estimated net interest income growth of 3.1% for the next 12 months implies demand will slow from its five-year trend
- Net interest margin dropped by 14.5 basis points (100 basis points = 1 percentage point) over the last two years, implying the firm’s loan book profitability fell as competitors entered the market
WSFS Financial’s stock price of $71.98 implies a valuation ratio of 1.3x forward P/B. Dive into our free research report to see why there are better opportunities than WSFS.
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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 Exlservice (+354% five-year return). Find your next big winner with StockStory today.