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.
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.
Wendy's (WEN)
Market Cap: $1.49 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 Think WEN Will Underperform?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Estimated sales growth of 1.1% for the next 12 months implies demand will slow from its seven-year trend
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Wendy's is trading at $7.92 per share, or 14x forward P/E. Dive into our free research report to see why there are better opportunities than WEN.
Sphere Entertainment (SPHR)
Market Cap: $4.92 billion
Famous for its viral Las Vegas Sphere venue, Sphere Entertainment (NYSE: SPHR) hosts live entertainment events and distributes content across various media platforms.
Why Do We Pass on SPHR?
- 18.7% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Free cash flow margin is forecasted to shrink by 18.1 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
Sphere Entertainment’s stock price of $138.75 implies a valuation ratio of 16.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SPHR doesn’t pass our bar.
Henry Schein (HSIC)
Market Cap: $8.28 billion
With a vast inventory of over 300,000 products stocked in distribution centers spanning more than 5.3 million square feet worldwide, Henry Schein (NASDAQ: HSIC) is a global distributor of healthcare products and services primarily to dental practices, medical offices, and other healthcare facilities.
Why Are We Wary of HSIC?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Anticipated sales growth of 3.6% for the next year implies demand will be shaky
- Eroding returns on capital suggest its historical profit centers are aging
At $72.83 per share, Henry Schein trades at 13.3x forward P/E. To fully understand why you should be careful with HSIC, check out our full research report (it’s free).
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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.
