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. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Rapid7 (RPD)
Market Cap: $1.71 billion
Founded in 2000 with the idea that network security comes before endpoint security, Rapid7 (NASDAQ:RPD) provides software as a service that helps companies understand where they are exposed to cyber security risks, quickly detect breaches and respond to them.
Why Does RPD Give Us Pause?
- Average billings growth of 4.6% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 2.5% for the next 12 months implies demand will slow from its three-year trend
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
Rapid7 is trading at $26.88 per share, or 2x forward price-to-sales. Read our free research report to see why you should think twice about including RPD in your portfolio.
ZoomInfo (ZI)
Market Cap: $3.37 billion
Founded in 2007 as DiscoveryOrg and renamed after a merger in 2019, ZoomInfo (NASDAQ:ZI) is a software as a service product that provides sales departments with access to a database of prospective clients.
Why Are We Hesitant About ZI?
- Flat billings over the last year suggest it may need to improve its products, pricing, or go-to-market strategy to reinvigorate demand
- Platform has low switching costs as its net revenue retention rate of 85.5% demonstrates high turnover
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 12.9 percentage points
At $9.74 per share, ZoomInfo trades at 3x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ZI.
Academy Sports (ASO)
Market Cap: $3.12 billion
Founded in 1938 as a tire shop before expanding into fishing equipment, Academy Sports & Outdoor (NASDAQ:ASO) sells a broad selection of sporting goods but is still known for its outdoor activity merchandise.
Why Is ASO Not Exciting?
- Sales trends were unexciting over the last five years as its 4.2% annual growth was below the typical consumer retail company
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 1.9 percentage points
Academy Sports’s stock price of $46 implies a valuation ratio of 7.1x forward price-to-earnings. Read our free research report to see why you should think twice about including ASO in your portfolio.
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market 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 United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.