Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
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.
Elastic (ESTC)
Market Cap: $8.94 billion
Started by Shay Banon as a search engine for his wife's growing list of recipes at Le Cordon Bleu cooking school in Paris, Elastic (NYSE:ESTC) helps companies integrate search into their products and monitor their cloud infrastructure.
Why Is ESTC Not Exciting?
- 19.8% annual revenue growth over the last three years was slower than its software peers
- Historical operating margin losses point to an inefficient cost structure
- 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 $83.75 per share, Elastic trades at 5.3x forward price-to-sales. If you’re considering ESTC for your portfolio, see our FREE research report to learn more.
Helios (HLIO)
Market Cap: $1.10 billion
Founded on the principle of treating others as one wants to be treated, Helios (NYSE:HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.
Why Should You Dump HLIO?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 2.3% annually while its revenue grew
Helios’s stock price of $33.11 implies a valuation ratio of 14.6x forward P/E. Dive into our free research report to see why there are better opportunities than HLIO.
STAAR Surgical (STAA)
Market Cap: $899.6 million
With over 2.5 million implants performed worldwide, STAAR Surgical (NASDAQ:STAA) designs and manufactures implantable lenses that correct vision problems without removing the eye's natural lens.
Why Is STAA Risky?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Free cash flow margin shrank by 26.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Eroding returns on capital suggest its historical profit centers are aging
STAAR Surgical is trading at $18.68 per share, or 3.1x forward price-to-sales. To fully understand why you should be careful with STAA, check out our full research report (it’s free).
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free.