3 Small-Cap Stocks Facing Headwinds

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.

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

Grocery Outlet (GO)

Market Cap: $1.31 billion

Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ:GO) is a discount grocery store chain that offers substantial discounts on name-brand products.

Why Do We Think Twice About GO?

1. Substandard operating margin profitability and its deterioration over the last year limit its responsiveness to unforeseen market trends
2. Underwhelming 2.3% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Grocery Outlet’s stock price of $13.25 implies a valuation ratio of 17x forward P/E. Dive into our free research report to see why there are better opportunities than GO.

Latham (SWIM)

Market Cap: $818.1 million

Started as a family business, Latham (NASDAQ:SWIM) is a global designer and manufacturer of in-ground residential swimming pools and related products.

Why Are We Cautious About SWIM?

1. Products and services aren't resonating with the market as its revenue declined by 10.9% annually over the last two years
2. Operating margin of 3.4% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
3. Negative returns on capital show that some of its growth strategies have backfired

At $6.81 per share, Latham trades at 50.8x forward P/E. To fully understand why you should be careful with SWIM, check out our full research report (it’s free).

Steelcase (SCS)

Market Cap: $1.29 billion

Founded in 1912 when metal office furniture was replacing wooden alternatives, Steelcase (NYSE:SCS) is a global office furniture manufacturer that designs and produces workplace solutions including desks, chairs, architectural products, and services.

Why Do We Pass on SCS?

1. Flat sales over the last five years suggest it must find different ways to grow during this cycle
2. Flat earnings per share over the last five years lagged its peers
3. ROIC of 7.1% reflects management’s challenges in identifying attractive investment opportunities

Steelcase is trading at $11.25 per share, or 10.2x forward P/E. Read our free research report to see why you should think twice about including SCS in your portfolio.

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. Find your next big winner with StockStory today. Find your next big winner with StockStory today