3 Small-Cap Stocks Walking a Fine Line

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.

These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Semtech (SMTC)

Market Cap: $6.97 billion

A public company since the late 1960s, Semtech (NASDAQ:SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.

Why Do We Steer Clear of SMTC?

1. Mounting operating losses demonstrate the tradeoff between growth and profitability
2. Investment activity picked up over the last five years, pressuring its weak free cash flow margin of 9.3%
3. Negative returns on capital show management lost money while trying to expand the business, and its shrinking returns suggest its past profit sources are losing steam

Semtech is trading at $75.33 per share, or 36.8x forward P/E. If you’re considering SMTC for your portfolio, see our FREE research report to learn more.

Tennant (TNC)

Market Cap: $1.36 billion

As the world’s largest manufacturer of autonomous mobile robots, Tennant (NYSE:TNC) designs, manufactures, and sells cleaning products to various sectors.

Why Do We Avoid TNC?

1. Sales were flat over the last two years, indicating it’s failed to expand this cycle
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.7%
3. Performance over the past two years shows each sale was less profitable, as its earnings per share fell by 4.3% annually

At $75.20 per share, Tennant trades at 11.4x forward P/E. Dive into our free research report to see why there are better opportunities than TNC.

Greenbrier (GBX)

Market Cap: $1.45 billion

Having designed the industry’s first double-decker railcar in the 1980s, Greenbrier (NYSE:GBX) supplies the freight rail transportation industry with railcars and related services.

Why Is GBX Not Exciting?

1. Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 13.9%
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

Greenbrier’s stock price of $46.50 implies a valuation ratio of 11.4x forward P/E. Check out our free in-depth research report to learn more about why GBX doesn’t pass our bar.

High-Quality Stocks for All Market Conditions

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in 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 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 Comfort Systems (+782% 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.