3 Small-Cap Stocks with Warning Signs

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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Noodles (NDLS)

Market Cap: $29.89 million

Offering pasta, mac and cheese, pad thai, and more, Noodles & Company (NASDAQ:NDLS) is a casual restaurant chain that serves all manner of noodles from around the world.

Why Are We Out on NDLS?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Earnings per share fell by 47.8% annually over the last six years while its revenue grew, showing its incremental sales were much less profitable
3. High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens

Noodles’s stock price of $0.65 implies a valuation ratio of 2.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why NDLS doesn’t pass our bar.

CTS (CTS)

Market Cap: $1.13 billion

With roots dating back to 1896 and a global manufacturing footprint, CTS (NYSE:CTS) designs and manufactures sensors, connectivity components, and actuators for aerospace, defense, industrial, medical, and transportation markets.

Why Are We Cautious About CTS?

1. Annual sales declines of 5.7% for the past two years show its products and services struggled to connect with the market during this cycle
2. Subscale operations are evident in its revenue base of $520.9 million, meaning it has fewer distribution channels than its larger rivals
3. Earnings per share have contracted by 4.5% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

At $38.31 per share, CTS trades at 16x forward P/E. To fully understand why you should be careful with CTS, check out our full research report (it’s free for active Edge members).

NerdWallet (NRDS)

Market Cap: $809.4 million

Born from founder Tim Chen's frustration with the lack of transparent credit card information when helping his sister in 2009, NerdWallet (NASDAQ:NRDS) is a digital platform that provides financial guidance to help consumers and small businesses make smarter decisions about credit cards, loans, insurance, and other financial products.

Why Does NRDS Fall Short?

1. Negative return on equity shows management lost money while trying to expand the business

NerdWallet is trading at $10.86 per share, or 1.9x forward P/E. Dive into our free research report to see why there are better opportunities than NRDS.

High-Quality Stocks for All Market Conditions

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking 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).

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