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.
C3.ai (AI)
Market Cap: $1.76 billion
Named after the three Cs of its original focus—carbon, cloud computing, and customer relationship management—C3.ai (NYSE: AI) provides enterprise AI software that helps organizations develop, deploy, and operate large-scale artificial intelligence applications across various industries.
Why Should You Dump AI?
- Products, pricing, or go-to-market strategy may need some adjustments as its 3.8% average billings growth over the last year was weak
- Gross margin of 51.8% reflects its high servicing costs
- Negative free cash flow raises questions about the return timeline for its investments
C3.ai’s stock price of $12.55 implies a valuation ratio of 5.7x forward price-to-sales. Check out our free in-depth research report to learn more about why AI doesn’t pass our bar.
Steven Madden (SHOO)
Market Cap: $3.24 billion
As seen in the infamous Wolf of Wall Street movie, Steven Madden (NASDAQ: SHOO) is a fashion brand famous for its trendy and innovative footwear, appealing to a young and style-conscious audience.
Why Do We Pass on SHOO?
- 13.2% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Low free cash flow margin of 7.8% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Steven Madden is trading at $44.56 per share, or 21.6x forward P/E. If you’re considering SHOO for your portfolio, see our FREE research report to learn more.
Zurn Elkay (ZWS)
Market Cap: $7.74 billion
Claiming to have saved more than 30 billion gallons of water, Zurn Elkay (NYSE: ZWS) provides water management solutions to various industries.
Why Are We Cautious About ZWS?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings per share have dipped by 4.5% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Free cash flow margin dropped by 16.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $46.24 per share, Zurn Elkay trades at 29.2x forward P/E. To fully understand why you should be careful with ZWS, check out our full research report (it’s free).
Stocks We Like More
Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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.
