3 Small-Cap Stocks We Approach with Caution

Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.

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.

Flywire (FLYW)

Market Cap: $1.68 billion

Initially created to solve the challenges of international student tuition payments, Flywire (NASDAQ:FLYW) provides specialized payment processing and software solutions that help educational institutions, healthcare systems, travel companies, and businesses manage complex payments.

Why Is FLYW Not Exciting?

1. Gross margin of 62.6% reflects its relatively high servicing costs
2. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
3. Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage

Flywire’s stock price of $13.77 implies a valuation ratio of 2.6x forward price-to-sales. To fully understand why you should be careful with FLYW, check out our full research report (it’s free for active Edge members).

Chemed (CHE)

Market Cap: $6.18 billion

With a unique business model combining end-of-life care and household services, Chemed (NYSE:CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.

Why Does CHE Give Us Pause?

1. Disappointing billable days over the past two years imply it may need to invest in improvements to get back on track
2. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 4.3 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

At $437.72 per share, Chemed trades at 17.5x forward P/E. Read our free research report to see why you should think twice about including CHE in your portfolio.

Stocks We Like More

Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.

The names generating the next wave of massive growth are right here in 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 244% over the last five years (as of June 30, 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.

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