3 Small-Cap Stocks with Mounting Challenges

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.

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

BeautyHealth (SKIN)

Market Cap: $150.3 million

Operating in the emerging beauty health category, the appropriately named BeautyHealth (NASDAQ:SKIN) is a skincare company best known for its Hydrafacial product that cleanses and hydrates skin.

Why Do We Avoid SKIN?

1. Revenue base of $334.3 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Persistent operating losses suggest the business manages its expenses poorly
3. High net-debt-to-EBITDA ratio of 15× increases the risk of forced asset sales or dilutive financing if operational performance weakens

BeautyHealth is trading at $1.24 per share, or 9.2x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SKIN.

Advanced Energy (AEIS)

Market Cap: $2.98 billion

Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ:AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.

Why Do We Think AEIS Will Underperform?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 10.4% annually over the last two years
2. Free cash flow margin shrank by 6.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Waning returns on capital imply its previous profit engines are losing steam

Advanced Energy’s stock price of $79.03 implies a valuation ratio of 15.9x forward price-to-earnings. If you’re considering AEIS for your portfolio, see our FREE research report to learn more.

Bio-Techne (TECH)

Market Cap: $8.18 billion

With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ:TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.

Why Does TECH Fall Short?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Modest revenue base of $1.20 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Efficiency has decreased over the last two years as its adjusted operating margin fell by 5.5 percentage points

At $51.75 per share, Bio-Techne trades at 25.8x forward price-to-earnings. Check out our free in-depth research report to learn more about why TECH doesn’t pass our bar.

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 9 Market-Beating Stocks. 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 Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.