3 Small-Cap Stocks That Concern Us

Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.

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.

Arhaus (ARHS)

Market Cap: $1.57 billion

With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ:ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.

Why Are We Wary of ARHS?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Subscale operations are evident in its revenue base of $1.34 billion, meaning it has fewer distribution channels than its larger rivals
3. Earnings per share have dipped by 10.2% annually over the past three years, which is concerning because stock prices follow EPS over the long term

Arhaus’s stock price of $11.16 implies a valuation ratio of 25.4x forward P/E. If you’re considering ARHS for your portfolio, see our FREE research report to learn more.

Global Business Travel (GBTG)

Market Cap: $3.58 billion

Holding close ties to American Express, Global Business Travel (NYSE:GBTG) is a comprehensive travel and expense management services provider to corporations worldwide.

Why Does GBTG Give Us Pause?

1. Estimated sales growth of 3.7% for the next 12 months implies demand will slow from its three-year trend
2. High servicing costs result in a relatively inferior gross margin of 61.1% that must be offset through increased usage
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 5.9% for the last year

Global Business Travel is trading at $7.47 per share, or 1.4x forward price-to-sales. Check out our free in-depth research report to learn more about why GBTG doesn’t pass our bar.

Clover Health (CLOV)

Market Cap: $1.27 billion

Founded in 2014 to improve healthcare for America's seniors through technology, Clover Health (NASDAQ:CLOV) provides Medicare Advantage plans for seniors with a focus on affordable care and uses its proprietary Clover Assistant software to help physicians manage patient care.

Why Is CLOV Not Exciting?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 18.1% annually over the last two years
2. Modest revenue base of $1.61 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Cash burn makes us question whether it can achieve sustainable long-term growth

At $2.48 per share, Clover Health trades at 17.6x forward P/E. To fully understand why you should be careful with CLOV, check out our full research report (it’s free).

Stocks We Like More

Donald Trump’s April 2025 "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 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-micro-cap company Tecnoglass (+1,754% 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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