3 Small-Cap Stocks Skating on Thin Ice

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 swipe left on and some alternatives you should look into instead.

Nature's Sunshine (NATR)

Market Cap: $228.8 million

Started on a kitchen table in Utah, Nature’s Sunshine (NASDAQ:NATR) manufactures and sells nutritional and personal care products.

Why Do We Think Twice About NATR?

1. Sales stagnated over the last three years and signal the need for new growth strategies
2. Revenue base of $454.4 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Earnings per share fell by 31.3% annually over the last three years while its revenue was flat, showing each sale was less profitable

At $12.90 per share, Nature's Sunshine trades at 15.7x forward price-to-earnings. Read our free research report to see why you should think twice about including NATR in your portfolio.

Travel + Leisure (TNL)

Market Cap: $3.19 billion

Formerly known as Wyndham Destinations, Travel + Leisure (NYSE:TNL) is a global vacation company that provides travelers with vacation ownership, exchange, and travel services.

Why Do We Steer Clear of TNL?

1. Number of tours conducted has disappointed over the past two years, indicating weak demand for its offerings
2. Underwhelming 7.9% return on capital reflects management’s difficulties in finding profitable growth opportunities
3. 8× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Travel + Leisure’s stock price of $47.90 implies a valuation ratio of 7.4x forward price-to-earnings. To fully understand why you should be careful with TNL, check out our full research report (it’s free).

Mister Car Wash (MCW)

Market Cap: $2.74 billion

Formerly known as Hotshine Holdings, Mister Car Wash (NYSE:MCW) offers car washes across the United States through its conveyorized service.

Why Should You Dump MCW?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Eroding returns on capital suggest its historical profit centers are aging
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Mister Car Wash is trading at $8.41 per share, or 21.7x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than MCW.

Stocks We Like More

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.