3 Small-Cap Stocks with Mounting Challenges

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.

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.

Revolve (RVLV)

Market Cap: $1.22 billion

Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NASDAQ:RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.

Why Should You Sell RVLV?

1. Competition may be pulling attention away from its platform as its 7.4% average growth in active customers was choppy
2. Key performance metrics have been flashing red recently as its average revenue per buyer dropped by 4% annually while engagement was weak
3. Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 19.7% annually

Revolve is trading at $17.29 per share, or 16x forward EV/EBITDA. If you’re considering RVLV for your portfolio, see our FREE research report to learn more.

Mueller Water Products (MWA)

Market Cap: $3.70 billion

As one of the oldest companies in the water infrastructure industry, Mueller (NYSE:MWA) is a provider of water infrastructure products and flow control systems for various sectors.

Why Is MWA Not Exciting?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.7%
3. Free cash flow margin has shown no improvement over the last five years

Mueller Water Products’s stock price of $24.80 implies a valuation ratio of 18.7x forward P/E. To fully understand why you should be careful with MWA, check out our full research report (it’s free).

Worthington (WOR)

Market Cap: $2.83 billion

Founded by a steel salesman, Worthington (NYSE:WOR) specializes in steel processing, pressure cylinders, and engineered cabs for commercial markets.

Why Do We Think WOR Will Underperform?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 19.4% annually over the last five years
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

At $56.67 per share, Worthington trades at 19.1x forward P/E. Dive into our free research report to see why there are better opportunities than WOR.

Stocks We Like More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market 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.