3 Small-Cap Stocks We Steer Clear Of

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.

Inspired (INSE)

Market Cap: $227.7 million

Specializing in digital casino gaming, Inspired (NASDAQ:INSE) is a provider of gaming hardware, virtual sports platforms, and server-based gaming systems.

Why Is INSE Not Exciting?

1. Lackluster 1.1% annual revenue growth over the last two years indicates the company is losing ground to competitors
2. Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
3. Poor free cash flow margin of 1.8% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

Inspired is trading at $8.10 per share, or 2.2x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including INSE in your portfolio.

Skechers (SKX)

Market Cap: $9.46 billion

Synonymous with "dad shoe", Skechers (NYSE:SKX) is a footwear company renowned for its comfortable, stylish, and affordable shoes for all ages.

Why Should You Sell SKX?

1. Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Waning returns on capital imply its previous profit engines are losing steam

Skechers’s stock price of $62.99 implies a valuation ratio of 18.1x forward P/E. Check out our free in-depth research report to learn more about why SKX doesn’t pass our bar.

Shoals (SHLS)

Market Cap: $790 million

Started in Huntsville, Alabama, Shoals (NASDAQ:SHLS) designs and manufactures products that make solar energy systems work more efficiently.

Why Should You Dump SHLS?

1. Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 3.3% for the past two years was weak
2. Free cash flow margin dropped by 5.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $4.81 per share, Shoals trades at 10.6x forward P/E. To fully understand why you should be careful with SHLS, check out our full research report (it’s free).

High-Quality Stocks for All Market Conditions

When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at 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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