3 Small-Cap Stocks Walking a Fine Line

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.

Qualys (QLYS)

Market Cap: $4.52 billion

Founded in 1999 as one of the first subscription security companies, Qualys (NASDAQ:QLYS) provides organizations with software to assess their exposure to cyber-attacks.

Why Are We Wary of QLYS?

1. Average billings growth of 6.1% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. Estimated sales growth of 7.1% for the next 12 months implies demand will slow from its three-year trend
3. Free cash flow margin is forecasted to shrink by 1.7 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors

At $125.45 per share, Qualys trades at 7.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than QLYS.

Proto Labs (PRLB)

Market Cap: $900 million

Pioneering the concept of online quoting and manufacturing for custom prototypes and low-volume production parts, Proto Labs (NYSE:PRLB) offers injection molding, 3D printing, and sheet metal fabrication for manufacturers in various industries.

Why Are We Out on PRLB?

1. Sales trends were unexciting over the last two years as its 1.3% annual growth was below the typical industrials company
2. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 9.8 percentage points
3. Incremental sales over the last five years were much less profitable as its earnings per share fell by 10.1% annually while its revenue grew

Proto Labs’s stock price of $37.14 implies a valuation ratio of 24.7x forward price-to-earnings. To fully understand why you should be careful with PRLB, check out our full research report (it’s free).

UFP Technologies (UFPT)

Market Cap: $1.65 billion

Founded in 1963, UFP Technologies (NASDAQ:UFPT) designs and manufactures medical products, sterile packaging, and other highly-engineered custom products for healthcare settings.

Why Does UFPT Worry Us?

1. Modest revenue base of $504.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies
2. Free cash flow margin was stuck in limbo over the last five years

UFP Technologies is trading at $214.47 per share, or 3.3x trailing 12-month price-to-sales. Check out our free in-depth research report to learn more about why UFPT doesn’t pass our bar.

Stocks We Like More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking 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 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free.