3 Small-Cap Stocks That Fall Short

Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.

The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Lithia (LAD)

Market Cap: $5.84 billion

With a strong presence in the Western US, Lithia Motors (NYSE:LAD) sells a wide range of vehicles, including new and used cars, trucks, SUVs, and luxury vehicles from various manufacturers.

Why Are We Hesitant About LAD?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Widely-available products (and therefore stiff competition) result in an inferior gross margin of 15.4% that must be offset through higher volumes
3. High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $250.42 per share, Lithia trades at 7.3x forward P/E. Read our free research report to see why you should think twice about including LAD in your portfolio.

Knight-Swift Transportation (KNX)

Market Cap: $9.02 billion

Covering 1.6 billion loaded miles in 2023 alone, Knight-Swift Transportation (NYSE:KNX) offers less-than-truckload and full truckload delivery services.

Why Do We Steer Clear of KNX?

1. Muted 2.3% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 14.4% annually
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Knight-Swift Transportation is trading at $54.98 per share, or 29.2x forward P/E. If you’re considering KNX for your portfolio, see our FREE research report to learn more.

Brighthouse Financial (BHF)

Market Cap: $3.43 billion

Spun off from MetLife in 2017 to focus specifically on retail financial products, Brighthouse Financial (NASDAQ:BHF) provides annuity contracts and life insurance products designed to help individuals protect wealth, generate income, and transfer assets.

Why Do We Avoid BHF?

1. 7.7% annual declines in net premiums earned for the past five years indicates policy sales struggled this cycle
2. Annual book value per share declines of 11.1% for the past five years show its capital management struggled during this cycle
3. Debt-to-equity ratio of 1.3× is concerningly high, indicating excessive leverage that could limit financial flexibility

Brighthouse Financial’s stock price of $59.98 implies a valuation ratio of 0.7x forward P/B. Check out our free in-depth research report to learn more about why BHF doesn’t pass our bar.

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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.