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.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three small-cap stocks to pass on and some alternatives you should look into instead.
USANA (USNA)
Market Cap: $251.7 million
Going to market with a direct selling model rather than through traditional retailers, USANA Health Sciences (NYSE: USNA) manufactures and sells nutritional, personal care, and skincare products.
Why Are We Wary of USNA?
- Sales tumbled by 1.2% annually over the last three years, showing consumer trends are working against it
- Revenue base of $913.4 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 32.9% annually, worse than its revenue
USANA is trading at $13.65 per share, or 13.3x forward P/E. Dive into our free research report to see why there are better opportunities than USNA.
Houlihan Lokey (HLI)
Market Cap: $9.24 billion
Founded in 1972 and known for its expertise in complex financial situations, Houlihan Lokey (NYSE: HLI) is a global investment bank specializing in mergers and acquisitions, capital markets, financial restructurings, and valuation advisory services.
Why Are We Hesitant About HLI?
- Performance over the past five years shows its incremental sales were less profitable, as its 5.3% annual earnings per share growth trailed its revenue gains
- Annual tangible book value per share growth of 4.5% over the last five years was below our standards for the financials sector
At $132.19 per share, Houlihan Lokey trades at 16.1x forward P/E. Read our free research report to see why you should think twice about including HLI in your portfolio.
Enova (ENVA)
Market Cap: $6.52 billion
Pioneering online lending since 2004 with a massive database of over 65 terabytes of customer behavior data, Enova International (NYSE: ENVA) provides online financial services including installment loans and lines of credit to non-prime consumers and small businesses in the United States and Brazil.
Why Does ENVA Worry Us?
- Incremental sales over the last five years were less profitable as its 8.8% annual earnings per share growth lagged its revenue gains
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Enova’s stock price of $265.93 implies a valuation ratio of 13.7x forward P/E. To fully understand why you should be careful with ENVA, check out our full research report (it’s free).
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-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
