3 Small-Cap Stocks We’re Skeptical Of

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.

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.

Sensata Technologies (ST)

Market Cap: $7.12 billion

Originally a temperature sensor control maker and a subsidiary of Texas Instruments for 60 years, Sensata Technology Holdings (NYSE: ST) is a leading supplier of analog sensors used in industrial and transportation applications, best known for its dominant position in the tire pressure monitoring systems in cars.

Why Do We Think ST Will Underperform?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.2% annually over the last two years
2. Anticipated sales growth of 4.3% for the next year implies demand will be shaky
3. Gross margin of 29.2% reflects its high production costs

Sensata Technologies is trading at $48.92 per share, or 12.7x forward P/E. If you’re considering ST for your portfolio, see our FREE research report to learn more.

Werner (WERN)

Market Cap: $2.23 billion

Conducting business in over a 100 countries, Werner (NASDAQ:WERN) offers full-truckload, less-than-truckload, and intermodal delivery services.

Why Do We Pass on WERN?

1. Sales tumbled by 2.3% annually over the last two years, showing market trends are working against its favor during this cycle
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 44.6% annually
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Werner’s stock price of $37.17 implies a valuation ratio of 29.7x forward P/E. Read our free research report to see why you should think twice about including WERN in your portfolio.

ScanSource (SCSC)

Market Cap: $872.3 million

Operating as a crucial link in the technology supply chain since 1992, ScanSource (NASDAQ:SCSC) is a hybrid distributor that connects hardware, software, and cloud services from technology suppliers to resellers and business customers.

Why Is SCSC Not Exciting?

1. Sales tumbled by 4.9% annually over the last two years, showing market trends are working against its favor during this cycle
2. Projected sales growth of 2.4% for the next 12 months suggests sluggish demand
3. Poor free cash flow margin of 3.4% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

At $42.93 per share, ScanSource trades at 9.6x forward P/E. Check out our free in-depth research report to learn more about why SCSC 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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.