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.
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.
Wendy's (WEN)
Market Cap: $1.29 billion
Founded by Dave Thomas in 1969, Wendy’s (NASDAQ:WEN) is a renowned fast-food chain known for its fresh, never-frozen beef burgers, flavorful menu options, and commitment to quality.
Why Do We Steer Clear of WEN?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Wendy's is trading at $7.73 per share, or 13.9x forward P/E. Dive into our free research report to see why there are better opportunities than WEN.
Donaldson (DCI)
Market Cap: $9.90 billion
Playing a vital role in the historic Apollo 11 mission, Donaldson (NYSE:DCI) manufacturers and sells filtration equipment for various industries.
Why Does DCI Give Us Pause?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Estimated sales growth of 6.9% for the next 12 months is soft and implies weaker demand
- Eroding returns on capital suggest its historical profit centers are aging
At $89.56 per share, Donaldson trades at 21.5x forward P/E. Read our free research report to see why you should think twice about including DCI in your portfolio.
Forestar Group (FOR)
Market Cap: $1.47 billion
As a majority-owned subsidiary of homebuilding giant D.R. Horton, Forestar Group (NYSE:FOR) develops and sells finished residential lots to homebuilders, focusing primarily on land acquisition and development for single-family homes.
Why Should You Dump FOR?
- Sales trends were unexciting over the last five years as its 8.8% annual growth was below the typical consumer discretionary company
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Forestar Group’s stock price of $30.22 implies a valuation ratio of 10.7x forward P/E. If you’re considering FOR for your portfolio, see our FREE research report to learn more.
Stocks We Like More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.
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.