3 Small-Cap Stocks We Think Twice About

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

Portillo's (PTLO)

Market Cap: $384.8 million

Begun as a Chicago hot dog stand in 1963, Portillo’s (NASDAQ:PTLO) is a casual restaurant chain that serves Chicago-style hot dogs and beef sandwiches as well as fries and shakes.

Why Should You Sell PTLO?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
2. Low free cash flow margin of -0.6% declined over the last year as its investments ramped, giving it little breathing room
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

At $5.35 per share, Portillo's trades at 30.8x forward P/E. Check out our free in-depth research report to learn more about why PTLO doesn’t pass our bar.

Western Union (WU)

Market Cap: $3.02 billion

With a history dating back to 1851 when it began as a telegraph company, Western Union (NYSE:WU) is a global money transfer service that enables consumers and businesses to send funds across borders and currencies, typically within minutes.

Why Do We Steer Clear of WU?

1. Annual sales declines of 2.9% for the past five years show its products and services struggled to connect with the market during this cycle
2. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term

Western Union is trading at $9.59 per share, or 5.3x forward P/E. If you’re considering WU for your portfolio, see our FREE research report to learn more.

TowneBank (TOWN)

Market Cap: $2.67 billion

Founded in 1998 with a commitment to community-centered banking in the Hampton Roads region, TowneBank (NASDAQ:TOWN) is a community-focused financial institution providing banking, lending, and wealth management services to individuals and businesses in Virginia and North Carolina.

Why Are We Cautious About TOWN?

1. Sales trends were unexciting over the last five years as its 5.1% annual growth was below the typical banking company
2. Net interest income trends were unexciting over the last five years as its 9.9% annual growth was below the typical banking firm
3. Estimated tangible book value per share growth of 2% for the next 12 months implies profitability will slow from its two-year trend

TowneBank’s stock price of $34.26 implies a valuation ratio of 1.2x forward P/B. Read our free research report to see why you should think twice about including TOWN in your portfolio.

Stocks We Like More

ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.

Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.

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.