3 Small-Cap Stocks We Approach with Caution

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.

BJ's (BJRI)

Market Cap: $936.5 million

Founded in 1978 in California, BJ’s Restaurants (NASDAQ:BJRI) is a chain of restaurants whose menu features classic American dishes, often with a twist.

Why Should You Sell BJRI?

1. Annual revenue growth of 3.2% over the last seven years was below our standards for the restaurant sector
2. Anticipated sales growth of 2.9% for the next year implies demand will be shaky
3. Lacking pricing power results in an inferior gross margin of 15.1% that must be offset by turning more tables

BJ's is trading at $44.56 per share, or 18.7x forward P/E. Read our free research report to see why you should think twice about including BJRI in your portfolio.

Hillman (HLMN)

Market Cap: $1.44 billion

Established when Max Hillman purchased a franchise operation, Hillman (NASDAQ:HLMN) designs, manufactures, and sells industrial equipment and systems for various sectors.

Why Do We Think Twice About HLMN?

1. Sales trends were unexciting over the last five years as its 2% annual growth was below the typical industrials company
2. Poor free cash flow margin of 2.9% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

At $7.22 per share, Hillman trades at 11.8x forward P/E. To fully understand why you should be careful with HLMN, check out our full research report (it’s free).

Garrett Motion (GTX)

Market Cap: $6.23 billion

A key player in the transition to cleaner vehicles, Garrett Motion (NYSE:GTX) designs and manufactures turbochargers, air compressors, and electric motor technologies for vehicle manufacturers and industrial applications.

Why Does GTX Give Us Pause?

1. Sales tumbled by 1.8% annually over the last two years, showing market trends are working against its favor during this cycle
2. Anticipated sales growth of 3.8% for the next year implies demand will be shaky
3. Gross margin of 19.8% is below its competitors, leaving less money to invest in areas like marketing and R&D

Garrett Motion’s stock price of $33.30 implies a valuation ratio of 1.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than GTX.

Stocks We Like More

ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.

Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.

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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.