3 Small-Cap Stocks Walking a Fine Line

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. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Spectrum Brands (SPB)

Market Cap: $1.87 billion

A leader in multiple consumer product categories, Spectrum Brands (NYSE:SPB) is a diversified company with a portfolio of trusted brands spanning home appliances, garden care, personal care, and pet care.

Why Are We Out on SPB?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam

Spectrum Brands is trading at $71.30 per share, or 13.3x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than SPB.

Wiley (WLY)

Market Cap: $2.42 billion

With roots dating back to 1807 when Charles Wiley opened a small printing shop in Manhattan, John Wiley & Sons (NYSE:WLY) is a global academic publisher that provides scientific journals, books, digital courseware, and knowledge solutions for researchers, students, and professionals.

Why Is WLY Risky?

1. Annual sales declines of 1.6% for the past five years show its products and services struggled to connect with the market during this cycle
2. Earnings per share were flat over the last two years and fell short of the peer group average
3. Free cash flow margin dropped by 4.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up

At $45.07 per share, Wiley trades at 18.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why WLY doesn’t pass our bar.

Arlo Technologies (ARLO)

Market Cap: $998.8 million

Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE:ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.

Why Are We Cautious About ARLO?

1. Annual revenue growth of 2.1% over the last two years was below our standards for the business services sector
2. Modest revenue base of $510.9 million gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

Arlo Technologies’s stock price of $10 implies a valuation ratio of 18.3x forward price-to-earnings. To fully understand why you should be careful with ARLO, check out our full research report (it’s free).

Stocks We Like More

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.