3 Small-Cap Stocks with Questionable Fundamentals

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.

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 swipe left on and some alternatives you should look into instead.

Laureate Education (LAUR)

Market Cap: $5.24 billion

Founded in 1998 by Douglas L. Becker and based in Miami, Laureate Education (NASDAQ:LAUR) is a global network of higher education institutions.

Why Should You Dump LAUR?

1. Demand for its offerings was relatively low as its number of enrolled students has underwhelmed
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 9% annually
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

At $35.58 per share, Laureate Education trades at 18.1x forward P/E. Dive into our free research report to see why there are better opportunities than LAUR.

Fastly (FSLY)

Market Cap: $1.40 billion

Taking its name from the core advantage it delivers to customers, Fastly (NYSE:FSLY) operates an edge cloud platform that processes, secures, and delivers web content as close to end users as possible, enabling faster digital experiences.

Why Do We Avoid FSLY?

1. Struggled to drive increased usage of its software, demonstrated by its subpar 103% net revenue retention rate
2. Gross margin of 55% reflects its high servicing costs
3. Historical operating margin losses point to an inefficient cost structure

Fastly is trading at $9.32 per share, or 2.1x forward price-to-sales. If you’re considering FSLY for your portfolio, see our FREE research report to learn more.

First Merchants (FRME)

Market Cap: $2.18 billion

Dating back to 1893 when it first opened its doors in Indiana, First Merchants (NASDAQ:FRME) is a Midwest regional bank providing commercial, consumer, and wealth management services through branches in Indiana, Ohio, Michigan, and Illinois.

Why Do We Think FRME Will Underperform?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Muted 7.1% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
3. Earnings per share fell by 3.7% annually over the last two years while its revenue was flat, showing each sale was less profitable

First Merchants’s stock price of $37.68 implies a valuation ratio of 0.9x forward P/B. To fully understand why you should be careful with FRME, check out our full research report (it’s free).

High-Quality Stocks for All Market Conditions

Check out the high-quality names we’ve flagged in 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 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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.