3 Small-Cap Stocks with Mounting Challenges

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.

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 avoid and some other investments you should consider instead.

Norwegian Cruise Line (NCLH)

Market Cap: $8.22 billion

With amenities like a full go-kart race track built into its ships, Norwegian Cruise Line (NYSE:NCLH) is a premier global cruise company.

Why Are We Wary of NCLH?

1. Demand for its offerings was relatively low as its number of passenger cruise days has underwhelmed
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

Norwegian Cruise Line’s stock price of $18.37 implies a valuation ratio of 8.6x forward P/E. If you’re considering NCLH for your portfolio, see our FREE research report to learn more.

American Outdoor Brands (AOUT)

Market Cap: $147.6 million

Spun off from Smith and Wesson in 2020, American Outdoor Brands (NASDAQ:AOUT) is an outdoor and recreational products company that offers outdoor and shooting sports products but does not sell firearms themselves.

Why Should You Dump AOUT?

1. Sales trends were unexciting over the last two years as its 3% annual growth was below the typical consumer discretionary company
2. Persistent operating margin losses suggest the business manages its expenses poorly
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

At $11.37 per share, American Outdoor Brands trades at 23.4x forward P/E. Read our free research report to see why you should think twice about including AOUT in your portfolio.

WEBTOON (WBTN)

Market Cap: $1.16 billion

Pioneering a vertical-scrolling format optimized for mobile devices, WEBTOON Entertainment (NASDAQ:WBTN) operates a global platform where creators publish serialized web-comics and web-novels that users can read in bite-sized episodes.

Why Does WBTN Worry Us?

1. Sluggish trends in its monthly active users suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Historically negative EPS casts doubt for cautious investors and clouds its long-term earnings prospects
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.8% for the last three years

WEBTOON is trading at $9.03 per share, or 21.1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why WBTN doesn’t pass our bar.

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 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 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free.