3 Small-Cap Stocks We Approach with Caution

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. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Vishay Intertechnology (VSH)

Market Cap: $2.20 billion

Named after the founder's ancestral village in present-day Lithuania, Vishay Intertechnology (NYSE:VSH) manufactures simple chips and electronic components that are building blocks of virtually all types of electronic devices.

Why Should You Sell VSH?

1. Annual sales declines of 7.3% for the past two years show its products and services struggled to connect with the market during this cycle
2. Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 21.1%
3. Free cash flow margin shrank by 16 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

At $16.18 per share, Vishay Intertechnology trades at 31.2x forward P/E. If you’re considering VSH for your portfolio, see our FREE research report to learn more.

Sleep Number (SNBR)

Market Cap: $180 million

Known for mattresses that can be adjusted with regards to firmness, Sleep Number (NASDAQ:SNBR) manufactures and sells its own brand of bedding products such as mattresses, bed frames, and pillows.

Why Is SNBR Risky?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Sales were less profitable over the last three years as its earnings per share fell by 51.4% annually, worse than its revenue declines
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Sleep Number is trading at $7.90 per share, or 14.6x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SNBR.

Root (ROOT)

Market Cap: $1.19 billion

Pioneering a data-driven approach that rewards good driving habits, Root (NASDAQ:ROOT) is a technology-driven auto insurance company that uses mobile apps to acquire customers and data science to price policies based on individual driving behavior.

Why Are We Wary of ROOT?

1. Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 158% annually over the last five years
2. Push for growth has led to negative returns on capital, signaling value destruction

Root’s stock price of $76.67 implies a valuation ratio of 3.7x forward P/B. To fully understand why you should be careful with ROOT, check out our full research report (it’s free).

Stocks We Like More

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. Check out our Top 9 Market-Beating Stocks. 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.