3 Small-Cap Stocks in Hot Water

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.

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 swipe left on and some alternatives you should look into instead.

Meritage Homes (MTH)

Market Cap: $4.69 billion

Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE:MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.

Why Do We Steer Clear of MTH?

1. Demand cratered as it couldn’t win new orders over the past two years, leading to an average 38.2% decline in its backlog
2. 15.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Eroding returns on capital suggest its historical profit centers are aging

Meritage Homes’s stock price of $65.28 implies a valuation ratio of 7.3x forward P/E. Check out our free in-depth research report to learn more about why MTH doesn’t pass our bar.

Iridium (IRDM)

Market Cap: $3.09 billion

With a constellation of 66 low-earth orbit satellites providing coverage to every inch of the planet, Iridium Communications (NASDAQ:IRDM) operates a global satellite network that provides voice and data services to customers in remote areas where traditional telecommunications are unavailable.

Why Is IRDM Not Exciting?

1. Modest revenue base of $841.7 million gives it less fixed cost leverage and fewer distribution channels than larger companies
2. 3.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Underwhelming 4.4% return on capital reflects management’s difficulties in finding profitable growth opportunities

Iridium is trading at $28.66 per share, or 19.4x forward P/E. To fully understand why you should be careful with IRDM, check out our full research report (it’s free).

NV5 Global (NVEE)

Market Cap: $1.48 billion

Operating from over 100 locations across the U.S. and internationally, NV5 Global (NASDAQ:NVEE) provides engineering, environmental, geospatial, and technical consulting services to public and private sector clients for infrastructure and building projects.

Why Are We Cautious About NVEE?

1. Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 5.1 percentage points
2. Incremental sales over the last two years were much less profitable as its earnings per share fell by 2.8% annually while its revenue grew
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 13.7 percentage points

At $22.40 per share, NV5 Global trades at 17x forward P/E. If you’re considering NVEE for your portfolio, see our FREE research report to learn more.

High-Quality Stocks for All Market Conditions

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 9 Market-Beating Stocks. 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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.