3 Small-Cap Stocks with Warning Signs

Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.

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.

Five9 (FIVN)

Market Cap: $2.00 billion

Started in 2001, Five9 (NASDAQ: FIVN) offers software-as-a-service that makes it easier for companies to set up and efficiently run call centers to offer more tailored customer support.

Why Does FIVN Give Us Pause?

1. Annual revenue growth of 16.5% over the last three years was below our standards for the software sector
2. Estimated sales growth of 8.1% for the next 12 months implies demand will slow from its three-year trend
3. Sky-high servicing costs result in an inferior gross margin of 55.3% that must be offset through increased usage

Five9 is trading at $25.86 per share, or 1.9x forward price-to-sales. Check out our free in-depth research report to learn more about why FIVN doesn’t pass our bar.

Proto Labs (PRLB)

Market Cap: $1.06 billion

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 Do We Avoid PRLB?

1. Annual revenue growth of 2.4% over the last two years was below our standards for the industrials sector
2. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 7.6 percentage points
3. Earnings per share have contracted by 9.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance

Proto Labs’s stock price of $44.36 implies a valuation ratio of 29.8x forward P/E. Read our free research report to see why you should think twice about including PRLB in your portfolio.

Bausch + Lomb (BLCO)

Market Cap: $5.11 billion

With a nearly 170-year history dedicated to vision care and eye health innovation, Bausch + Lomb (NYSE:BLCO) develops and manufactures a comprehensive range of eye health products including contact lenses, pharmaceuticals, surgical devices, and consumer eye care solutions.

Why Does BLCO Worry Us?

1. Annual revenue growth of 7.2% over the last five years was below our standards for the healthcare sector
2. 23.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

At $14.44 per share, Bausch + Lomb trades at 17.1x forward P/E. Dive into our free research report to see why there are better opportunities than BLCO.

Stocks We Like More

Donald Trump’s April 2024 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 9 Market-Beating Stocks. 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. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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