3 Small-Cap Stocks Facing Headwinds

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.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Agilysys (AGYS)

Market Cap: $3.11 billion

Originally a subsidiary of Pioneer-Standard Electronics that distributed electronic components, Agilysys (NASDAQ:AGYS) offers a software-as-service platform that helps hotels, resorts, restaurants, and other hospitality businesses manage their operations and workflows.

Why Are We Wary of AGYS?

1. Revenue increased by 19.2% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
2. High servicing costs result in a relatively inferior gross margin of 62.4% that must be offset through increased usage
3. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 1.1 percentage points over the next year

Agilysys is trading at $111.75 per share, or 10.2x forward price-to-sales. Check out our free in-depth research report to learn more about why AGYS doesn’t pass our bar.

Hilton Grand Vacations (HGV)

Market Cap: $3.69 billion

Spun off from Hilton Worldwide in 2017, Hilton Grand Vacations (NYSE:HGV) is a global timeshare company that provides travel experiences for its customers through its timeshare resorts and club membership programs.

Why Does HGV Fall Short?

1. Muted 11.6% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
2. ROIC of 3.1% reflects management’s challenges in identifying attractive investment opportunities
3. 11× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Hilton Grand Vacations’s stock price of $40.29 implies a valuation ratio of 10.8x forward P/E. To fully understand why you should be careful with HGV, check out our full research report (it’s free).

Karat Packaging (KRT)

Market Cap: $530 million

Founded as Lollicup, Karat Packaging (NASDAQ: KRT) distributes and manufactures environmentally-friendly disposable foodservice packaging solutions.

Why Do We Think Twice About KRT?

1. Annual revenue growth of 2.1% over the last two years was below our standards for the industrials sector
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 5.9% annually
3. Poor free cash flow margin of 4.5% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

At $26.99 per share, Karat Packaging trades at 9.7x forward EV-to-EBITDA. If you’re considering KRT 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 5 Growth Stocks for this month. 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. Find your next big winner with StockStory today. Find your next big winner with StockStory today.