3 Small-Cap Stocks with Questionable Fundamentals

Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.

These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Udemy (UDMY)

Market Cap: $968.2 million

With courses ranging from investing to cooking to computer programming, Udemy (NASDAQ:UDMY) is an online learning platform that connects learners with expert instructors who specialize in a wide range of topics.

Why Are We Hesitant About UDMY?

1. Preference for prioritizing user growth over monetization has led to 1.6% annual drops in its average revenue per buyer
2. Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
3. Excessive marketing spend signals little organic demand and traction for its platform

Udemy is trading at $6.51 per share, or 10.5x forward EV/EBITDA. To fully understand why you should be careful with UDMY, check out our full research report (it’s free).

Hillman (HLMN)

Market Cap: $1.44 billion

Established when Max Hillman purchased a franchise operation, Hillman (NASDAQ:HLMN) designs, manufactures, and sells industrial equipment and systems for various sectors.

Why Does HLMN Give Us Pause?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
2. Responsiveness to unforeseen market trends is restricted due to its substandard operating profitability
3. Low returns on capital reflect management’s struggle to allocate funds effectively

At $7.45 per share, Hillman trades at 12.9x forward P/E. Dive into our free research report to see why there are better opportunities than HLMN.

Whirlpool (WHR)

Market Cap: $4.26 billion

Credited with introducing the first automatic washing machine, Whirlpool (NYSE:WHR) is a manufacturer of a variety of home appliances.

Why Do We Avoid WHR?

1. Weak unit sales over the past two years imply it may need to invest in improvements to get back on track
2. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
3. High net-debt-to-EBITDA ratio of 9× increases the risk of forced asset sales or dilutive financing if operational performance weakens

Whirlpool’s stock price of $76.75 implies a valuation ratio of 8.2x forward P/E. Read our free research report to see why you should think twice about including WHR in your portfolio.

Stocks We Like More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking 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 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.