3 Small-Cap Stocks Facing Headwinds

Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.

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.

Xponential Fitness (XPOF)

Market Cap: $352.8 million

Owner of CycleBar, Rumble, and Club Pilates, Xponential Fitness (NYSE:XPOF) is a boutique fitness brand offering diverse and specialized exercise experiences.

Why Are We Cautious About XPOF?

1. 9.3% annual revenue growth over the last two years was slower than its consumer discretionary peers
2. Subpar operating margin of 0.1% constrains its ability to invest in process improvements or effectively respond to new competitive threats
3. Push for growth has led to negative returns on capital, signaling value destruction

At $10.10 per share, Xponential Fitness trades at 9x forward P/E. If you’re considering XPOF for your portfolio, see our FREE research report to learn more.

Lindsay (LNN)

Market Cap: $1.61 billion

A pioneer in the field of center pivot and lateral move irrigation, Lindsay (NYSE:LNN) provides a variety of proprietary water management and road infrastructure products and services.

Why Does LNN Fall Short?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Sales are projected to tank by 2.6% over the next 12 months as its demand continues evaporating
3. Earnings per share lagged its peers over the last two years as they only grew by 4% annually

Lindsay is trading at $148.29 per share, or 23.3x forward P/E. Read our free research report to see why you should think twice about including LNN in your portfolio.

The Hanover Insurance Group (THG)

Market Cap: $5.89 billion

Founded in 1852 during a time when fire insurance was crucial for protecting businesses and homes, The Hanover Insurance Group (NYSE:THG) provides property and casualty insurance products through independent agents, serving individuals, small businesses, and mid-sized companies.

Why Is THG Not Exciting?

1. Premium trends were unexciting over the last two years as its 5.5% annual growth was below the typical insurance company
2. Capital trends were unexciting over the last five years as its 3.3% annual book value per share growth was below the typical insurance company
3. ROE of 10.4% reflects management’s challenges in identifying attractive investment opportunities

The Hanover Insurance Group’s stock price of $163.98 implies a valuation ratio of 1.8x forward P/B. Check out our free in-depth research report to learn more about why THG doesn’t pass our bar.

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 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-small-cap company Comfort Systems (+782% 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