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.
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. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
IPG Photonics (IPGP)
Market Cap: $3.56 billion
Both a designer and manufacturer of its products, IPG Photonics (NASDAQ: IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials.
Why Is IPGP Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.3% annually over the last five years
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 20.5% annually, worse than its revenue
- 11.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
IPG Photonics is trading at $84.27 per share, or 69.4x forward P/E. Read our free research report to see why you should think twice about including IPGP in your portfolio.
Vimeo (VMEO)
Market Cap: $734.1 million
Originally launched in 2004 as a platform for filmmakers seeking a high-quality alternative to YouTube, Vimeo (NASDAQ: VMEO) provides cloud-based video creation, editing, hosting, and distribution software that helps businesses and creators make, manage, and share professional-quality videos.
Why Does VMEO Fall Short?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Modest revenue base of $415.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Negative returns on capital show that some of its growth strategies have backfired
Vimeo’s stock price of $4.44 implies a valuation ratio of 23.9x forward EV-to-EBITDA. To fully understand why you should be careful with VMEO, check out our full research report (it’s free).
The Hanover Insurance Group (THG)
Market Cap: $6.35 billion
Founded in 1852 during a time when fire insurance was crucial for protecting businesses and homes, The Hanover Insurance Group (NYSE: THG) provides property and casualty insurance products through independent agents, serving individuals, small businesses, and mid-sized companies.
Why Are We Hesitant About THG?
- Muted 5.4% annual revenue growth over the last two years shows its demand lagged behind its insurance peers
- Growth in insurance policies was lackluster over the last two years as its 5% annual growth underperformed the typical financial institution
- Capital trends were unexciting over the last five years as its 2% annual book value per share growth was below the typical insurance firm
At $177.62 per share, The Hanover Insurance Group trades at 1.9x forward P/B. Dive into our free research report to see why there are better opportunities than THG.
Stocks We Like More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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