3 Small-Cap Stocks That Concern Us

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.

FormFactor (FORM)

Market Cap: $9.10 billion

With customers across the foundry and fabless markets, FormFactor (NASDAQ:FORM) is a US-based provider of test and measurement technologies for semiconductors.

Why Is FORM Not Exciting?

1. Muted 3.1% annual revenue growth over the last five years shows its demand lagged behind its semiconductor peers
2. Gross margin of 41.4% is below its competitors, leaving less money to invest in areas like marketing and R&D
3. Lacking free cash flow margin got worse over the last five years as its investment needs accelerated

At $115.85 per share, FormFactor trades at 50.2x forward P/E. Check out our free in-depth research report to learn more about why FORM doesn’t pass our bar.

RH (RH)

Market Cap: $2.77 billion

Formerly known as Restoration Hardware, RH (NYSE:RH) is a specialty retailer that exclusively sells its own brand of high-end furniture and home decor.

Why Does RH Fall Short?

1. Annual revenue declines of 1.4% over the last three years indicate problems with its market positioning
2. Earnings per share have dipped by 36.2% annually over the past three years, which is concerning because stock prices follow EPS over the long term
3. High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens

RH’s stock price of $146.45 implies a valuation ratio of 27.8x forward P/E. To fully understand why you should be careful with RH, check out our full research report (it’s free).

Richardson Electronics (RELL)

Market Cap: $235.8 million

Founded in 1947, Richardson Electronics (NASDAQ:RELL) is a distributor of power grid and microwave tubes as well as consumables related to those products.

Why Do We Think RELL Will Underperform?

1. Sales trends were unexciting over the last two years as its 1.5% annual growth was below the typical industrials company
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Richardson Electronics is trading at $16.25 per share, or 47.2x forward P/E. If you’re considering RELL for your portfolio, see our FREE research report to learn more.

Stocks We Like More

ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.

Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today.