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. Keeping that in mind, here are three small-cap stocks to pass on and some alternatives you should look into instead.
Qualys (QLYS)
Market Cap: $6.34 billion
Originally developed to address the growing complexity of IT security in the cloud era, Qualys (NASDAQ: QLYS) provides a cloud-based platform that helps organizations identify, manage, and protect their IT assets from cyber threats across on-premises, cloud, and mobile environments.
Why Are We Wary of QLYS?
- ARR growth averaged a weak 10.3% over the last year, suggesting that competition is pulling some attention away from its software
- Projected sales growth of 8.9% for the next 12 months suggests sluggish demand
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
Qualys is trading at $183.35 per share, or 8.3x forward price-to-sales. If you’re considering QLYS for your portfolio, see our FREE research report to learn more.
Yelp (YELP)
Market Cap: $1.03 billion
Founded by PayPal alumni Jeremy Stoppelman and Russel Simmons, Yelp (NYSE: YELP) is an online platform that helps people discover local businesses through crowd-sourced reviews.
Why Does YELP Give Us Pause?
- Muted 5.1% annual revenue growth over the last three years shows its demand lagged behind its consumer internet peers
- Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
- High marketing expenses suggest it needs to spend heavily on new customer acquisition to sustain momentum
At $19.11 per share, Yelp trades at 3.6x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than YELP.
SAIC (SAIC)
Market Cap: $5.43 billion
With over five decades of experience supporting national security missions, Science Applications International Corporation (NASDAQ: SAIC) provides technical, engineering, and enterprise IT services primarily to U.S. government agencies and military branches.
Why Are We Hesitant About SAIC?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Projected sales decline of 1.3% for the next 12 months points to an even tougher demand environment ahead
SAIC’s stock price of $135.81 implies a valuation ratio of 13x forward P/E. Read our free research report to see why you should think twice about including SAIC in your portfolio.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
