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.

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 avoid and some other investments you should consider instead.

Lucky Strike (LUCK)

Market Cap: $1.35 billion

Born from the transformation of traditional bowling alleys into modern entertainment destinations, Lucky Strike (NYSE:LUCK) operates bowling alleys and other entertainment venues with upscale amenities, arcade games, and food and beverage services across North America.

Why Do We Pass on LUCK?

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. Waning returns on capital imply its previous profit engines are losing steam
3. High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $9.62 per share, Lucky Strike trades at 91.4x forward P/E. To fully understand why you should be careful with LUCK, check out our full research report (it’s free for active Edge members).

Premier (PINC)

Market Cap: $2.30 billion

Operating one of the largest healthcare group purchasing organizations in the United States with over 4,350 hospital members, Premier (NASDAQ:PINC) is a technology-driven healthcare improvement company that helps hospitals, health systems, and other providers reduce costs and improve clinical outcomes.

Why Do We Avoid PINC?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 12.9% annually over the last two years
2. Adjusted operating margin declined by 15.5 percentage points over the last two years as its sales cratered
3. Issuance of new shares over the last five years caused its earnings per share to fall by 11.8% annually, even worse than its revenue declines

Premier is trading at $27.82 per share, or 20.6x forward P/E. Check out our free in-depth research report to learn more about why PINC doesn’t pass our bar.

Veritex Holdings (VBTX)

Market Cap: $1.64 billion

Founded during the 2009 financial crisis when many banks were failing, Veritex Holdings (NASDAQGM:VBTX) operates Veritex Community Bank, providing commercial and retail banking services to small and medium-sized businesses and professionals in Texas.

Why Are We Hesitant About VBTX?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.9% annually over the last two years
2. Estimated net interest income growth of 2% for the next 12 months implies demand will slow from its five-year trend
3. Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable

Veritex Holdings’s stock price of $29.96 implies a valuation ratio of 1x forward P/B. If you’re considering VBTX for your portfolio, see our FREE research report to learn more.

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 6 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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