3 Small-Cap Stocks We Think Twice About

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. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Academy Sports (ASO)

Market Cap: $2.93 billion

Founded in 1938 as a tire shop before expanding into fishing equipment, Academy Sports & Outdoor (NASDAQ:ASO) sells a broad selection of sporting goods but is still known for its outdoor activity merchandise.

Why Does ASO Worry Us?

1. Muted 4% annual revenue growth over the last six years shows its demand lagged behind its consumer retail peers
2. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
3. Earnings per share have dipped by 2.5% annually over the past four years, which is concerning because stock prices follow EPS over the long term

At $44.10 per share, Academy Sports trades at 7.1x forward P/E. Check out our free in-depth research report to learn more about why ASO doesn’t pass our bar.

Standex (SXI)

Market Cap: $2.84 billion

Holding over 500 patents globally, Standex (NYSE:SXI) is a manufacturer and distributor of industrial components for various sectors.

Why Are We Wary of SXI?

1. 6% annual revenue growth over the last two years was slower than its industrials peers
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 4.4 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

Standex’s stock price of $234.03 implies a valuation ratio of 25.8x forward P/E. To fully understand why you should be careful with SXI, check out our full research report (it’s free for active Edge members).

Merchants Bancorp (MBIN)

Market Cap: $1.47 billion

With a strategic focus on low-risk, government-backed lending programs, Merchants Bancorp (NASDAQCM:MBIN) is an Indiana-based bank holding company specializing in multi-family mortgage banking, mortgage warehousing, and traditional banking services.

Why Do We Think Twice About MBIN?

1. Weak unit economics are reflected in its net interest margin of 2.9%, one of the worst among bank companies
2. Operational productivity has decreased over the last five years as its efficiency ratio worsened by 13.6 percentage points
3. Low tier one capital ratio of 8.9% indicates the company may struggle to maintain adequate liquidity during periods of economic stress

Merchants Bancorp is trading at $31.93 per share, or 0.8x forward P/B. If you’re considering MBIN for your portfolio, see our FREE research report to learn more.

Stocks We Like More

Fresh US-China trade tensions just tanked stocks—but strong bank earnings are fueling a sharp rebound. Don’t miss the bounce.

Don’t let fear keep you from great opportunities and take a look at 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

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.