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. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Cars.com (CARS)

Market Cap: $484.3 million

Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE: CARS) is a digital marketplace that connects new and used car buyers and sellers.

Why Does CARS Give Us Pause?

1. May need to improve its platform and marketing strategy as its 1% average growth in dealer customers underwhelmed
2. Estimated sales growth of 1% for the next 12 months implies demand will slow from its three-year trend
3. Incremental sales over the last three years were less profitable as its earnings per share were flat while its revenue grew

Cars.com’s stock price of $8.25 implies a valuation ratio of 4.2x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than CARS.

Pegasystems (PEGA)

Market Cap: $7.15 billion

With a "Center-out Business Architecture" approach that transcends organizational silos, Pegasystems (NASDAQ: PEGA) develops software that helps organizations automate workflows and use artificial intelligence to improve customer experiences and business processes.

Why Are We Cautious About PEGA?

1. Annual revenue growth of 11.4% over the last five years was below our standards for the software sector
2. Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
3. Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient

Pegasystems is trading at $42.68 per share, or 3.9x forward price-to-sales. Read our free research report to see why you should think twice about including PEGA in your portfolio.

Cracker Barrel (CBRL)

Market Cap: $637.9 million

Known for its country-themed food and merchandise, Cracker Barrel (NASDAQ: CBRL) is a beloved American restaurant and retail chain that celebrates the warmth and charm of Southern hospitality.

Why Should You Sell CBRL?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Incremental sales over the last six years were much less profitable as its earnings per share fell by 33.1% annually while its revenue grew
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

At $28.58 per share, Cracker Barrel trades at 12.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why CBRL doesn’t pass our bar.

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