3 Small-Cap Stocks with Open Questions

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.

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

Petco (WOOF)

Market Cap: $700.3 million

Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ:WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.

Why Do We Steer Clear of WOOF?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Performance over the past three years was negatively impacted by new share issuances as its earnings per share fell by 42% annually while its revenue was flat
3. High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $2.50 per share, Petco trades at 11.2x forward P/E. Check out our free in-depth research report to learn more about why WOOF doesn’t pass our bar.

The Cheesecake Factory (CAKE)

Market Cap: $3.07 billion

Celebrated for its delicious (and free) brown bread, gigantic portions, and delectable desserts, Cheesecake Factory (NASDAQ:CAKE) is an iconic American restaurant chain that also owns and operates a portfolio of separate restaurant brands.

Why Does CAKE Give Us Pause?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
2. Estimated sales growth of 3.9% for the next 12 months implies demand will slow from its six-year trend
3. 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

The Cheesecake Factory’s stock price of $61.51 implies a valuation ratio of 15.4x forward P/E. If you’re considering CAKE for your portfolio, see our FREE research report to learn more.

Insteel (IIIN)

Market Cap: $720.4 million

Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE:IIIN) provides steel wire reinforcing products for concrete.

Why Is IIIN Not Exciting?

1. Annual revenue growth of 5.9% over the last two years was below our standards for the industrials sector
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.3 percentage points
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Insteel is trading at $37.14 per share, or 13.5x forward P/E. To fully understand why you should be careful with IIIN, 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 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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.