3 Small-Cap Stocks with Mounting Challenges

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 avoid and some other investments you should consider instead.

Match Group (MTCH)

Market Cap: $7.62 billion

Originally started as a dial-up service before widespread internet adoption, Match (NASDAQ:MTCH) was an early innovator in online dating and today has a portfolio of apps including Tinder, Hinge, Archer, and OkCupid.

Why Are We Cautious About MTCH?

1. Value proposition isn’t resonating strongly as its payers averaged 4.5% drops over the last two years
2. Estimated sales decline of 1.3% for the next 12 months implies a challenging demand environment
3. Free cash flow margin shrank by 2.6 percentage points over the last few years, suggesting the company is consuming more capital to stay competitive

Match Group is trading at $30.50 per share, or 6.5x forward EV/EBITDA. Read our free research report to see why you should think twice about including MTCH in your portfolio.

Champion Homes (SKY)

Market Cap: $5.00 billion

Founded in 1951, Champion Homes (NYSE:SKY) is a manufacturer of modular homes and buildings in North America.

Why Does SKY Fall Short?

1. Flat unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Earnings per share decreased by more than its revenue over the last two years, partly because it diluted shareholders
3. Waning returns on capital imply its previous profit engines are losing steam

Champion Homes’s stock price of $87.21 implies a valuation ratio of 23.3x forward P/E. Dive into our free research report to see why there are better opportunities than SKY.

OPENLANE (KAR)

Market Cap: $2.00 billion

Facilitating the sale of approximately 1.3 million used vehicles in 2023, OPENLANE (NYSE:KAR) operates digital marketplaces that connect sellers and buyers of used vehicles across North America and Europe, facilitating wholesale transactions.

Why Are We Wary of KAR?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 8.5% annually over the last five years
2. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 16.3% annually, worse than its revenue
3. 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $18.62 per share, OPENLANE trades at 19.1x forward P/E. To fully understand why you should be careful with KAR, check out our full research report (it’s free).

Stocks That Overcame Trump’s 2018 Tariffs

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out 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 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.