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. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Alta (ALTG)
Market Cap: $215.4 million
Founded in 1984, Alta Equipment Group (NYSE:ALTG) is a provider of industrial and construction equipment and services across the Midwest and Northeast United States.
Why Do We Pass on ALTG?
- Sales tumbled by 2% annually over the last two years, showing market trends are working against it during this cycle
- Issuance of new shares over the last five years caused its earnings per share to fall by 35.6% annually while its revenue grew
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Alta’s stock price of $6.61 implies a valuation ratio of 5.9x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than ALTG.
Dave & Buster's (PLAY)
Market Cap: $363.5 million
Founded by a former game parlor and bar operator, Dave & Buster’s (NASDAQ:PLAY) operates a chain of arcades providing immersive entertainment experiences.
Why Do We Steer Clear of PLAY?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Dave & Buster's is trading at $10.53 per share, or 8.2x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including PLAY in your portfolio.
Mercury General (MCY)
Market Cap: $6.05 billion
Founded in 1961 and maintaining a network of over 6,300 independent agents across the country, Mercury General (NYSE:MCY) is an insurance company that primarily sells automobile insurance policies through independent agents in 11 states, with a strong focus on California.
Why Does MCY Give Us Pause?
- Estimated sales growth of 2.1% for the next 12 months implies demand will slow from its two-year trend
- Annual book value per share growth of 4.2% over the last five years was below our standards for the insurance sector
- ROE of 8.9% reflects management’s challenges in identifying attractive investment opportunities
At $109.06 per share, Mercury General trades at 2x forward P/B. Check out our free in-depth research report to learn more about why MCY doesn’t pass our bar.
Stocks We Like More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.