Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.

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.

Petco (WOOF)

Market Cap: $848.6 million

Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ:WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.

Why Are We Cautious About WOOF?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Persistent operating losses suggest the business manages its expenses poorly
3. High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens

Petco’s stock price of $3.07 implies a valuation ratio of 50.1x forward P/E. Read our free research report to see why you should think twice about including WOOF in your portfolio, it’s free.

PENN Entertainment (PENN)

Market Cap: $2.42 billion

Established in 1982, PENN Entertainment (NASDAQ:PENN) is a diversified American operator of casinos, sports betting, and entertainment venues.

Why Is PENN Risky?

1. 1.4% annual revenue growth over the last two years was slower than its consumer discretionary peers
2. Earnings per share fell by 21.4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

At $16.07 per share, PENN Entertainment trades at 28.5x forward P/E. If you’re considering PENN for your portfolio, see our FREE research report to learn more.

Proto Labs (PRLB)

Market Cap: $911.6 million

Pioneering the concept of online quoting and manufacturing for custom prototypes and low-volume production parts, Proto Labs (NYSE:PRLB) offers injection molding, 3D printing, and sheet metal fabrication for manufacturers in various industries.

Why Do We Pass on PRLB?

1. Sales were flat over the last two years, indicating it’s failed to expand this cycle
2. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 7.3 percentage points
3. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term

Proto Labs is trading at $38.35 per share, or 26x forward P/E. To fully understand why you should be careful with PRLB, check out our full research report (it’s free).

Stocks We Like More

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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.