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 pass on and some alternatives you should look into instead.
Revolve (RVLV)
Market Cap: $1.72 billion
Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NYSE: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.
Why Are We Cautious About RVLV?
- Sales trends were unexciting over the last three years as its 6.6% annual growth was below the typical consumer internet company
- Competition may be pulling attention away from its platform as its 6.5% average growth in active customers was choppy
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
At $24.15 per share, Revolve trades at 13.6x forward EV/EBITDA. Read our free research report to see why you should think twice about including RVLV in your portfolio.
Energizer (ENR)
Market Cap: $1.44 billion
Masterminds behind the viral Energizer Bunny mascot, Energizer (NYSE: ENR) is one of the world's largest manufacturers of batteries.
Why Do We Pass on ENR?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Energizer’s stock price of $21.11 implies a valuation ratio of 6.6x forward P/E. To fully understand why you should be careful with ENR, check out our full research report (it’s free).
MillerKnoll (MLKN)
Market Cap: $1.55 billion
Created through the 2021 merger of industry icons Herman Miller and Knoll, MillerKnoll (NASDAQ: MLKN) designs, manufactures, and distributes interior furnishings for offices, healthcare facilities, educational settings, and homes worldwide.
Why Is MLKN Not Exciting?
- Muted 2.9% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 11% annually
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.2% for the last five years
MillerKnoll is trading at $22.76 per share, or 11.5x forward P/E. Check out our free in-depth research report to learn more about why MLKN doesn’t pass our bar.
Stocks We Like More
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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-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
