3 Small-Cap Stocks in the Doghouse

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.

VF Corp (VFC)

Market Cap: $4.51 billion

Owner of The North Face, Vans, and Supreme, VF Corp (NYSE:VFC) is a clothing conglomerate specializing in branded lifestyle apparel, footwear, and accessories.

Why Do We Pass on VFC?

1. Constant currency revenue growth has disappointed over the past two years and shows demand was soft
2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3. High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate

VF Corp’s stock price of $11.50 implies a valuation ratio of 12.6x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than VFC.

DistributionNOW (DNOW)

Market Cap: $1.77 billion

Spun off from National Oilwell Varco, DistributionNOW (NYSE:DNOW) provides distribution and supply chain solutions for the energy and industrial end markets.

Why Do We Avoid DNOW?

1. Annual sales declines of 4.3% for the past five years show its products and services struggled to connect with the market during this cycle
2. Responsiveness to unforeseen market trends is restricted due to its substandard operating profitability
3. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term

DistributionNOW is trading at $16.60 per share, or 20.6x forward price-to-earnings. To fully understand why you should be careful with DNOW, check out our full research report (it’s free).

Walgreens (WBA)

Market Cap: $9.48 billion

Primarily offering prescription medicine, health, and beauty products, Walgreens Boots Alliance (NASDAQ:WBA) is a pharmacy chain formed through the 2014 major merger of American company Walgreens and European company Alliance Boots.

Why Does WBA Give Us Pause?

1. Annual sales growth of 2.9% over the last six years lagged behind its consumer retail peers as its large revenue base made it difficult to generate incremental demand
2. Widely-available products (and therefore stiff competition) result in an inferior gross margin of 18% that must be offset through higher volumes
3. 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $10.96 per share, Walgreens trades at 7.2x forward price-to-earnings. If you’re considering WBA for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.