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.

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.

Churchill Downs (CHDN)

Market Cap: $8.24 billion

Famous for hosting the Kentucky Derby, Churchill Downs (NASDAQ:CHDN) operates a horse racing, online wagering, and gaming entertainment business in the United States.

Why Do We Think Twice About CHDN?

1. Estimated sales growth of 7.6% for the next 12 months implies demand will slow from its two-year trend

2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3% for the last two years

3. Underwhelming 7.4% return on capital reflects management’s difficulties in finding profitable growth opportunities

At $111.31 per share, Churchill Downs trades at 16x forward price-to-earnings. If you’re considering CHDN for your portfolio, see our FREE research report to learn more .

MDU Resources (MDU)

Market Cap: $3.48 billion

Founded to provide electricity to towns in Minnesota, MDU Resources (NYSE:MDU) provides products and services in the utilities and construction materials industries.

Why Is MDU Risky?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.3% annually over the last five years

2. Earnings per share have contracted by 4% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance

3. Poor free cash flow margin of -0.7% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

MDU Resources is trading at $16.87 per share, or 9.8x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than MDU .

FuelCell Energy (FCEL)

Market Cap: $110.8 million

Founded in 1969, FuelCell Energy (NASDAQ: FCEL) is a leading manufacturer and developer of carbonate fuel cell technology for stationary power generation.

Why Does FCEL Fall Short?

1. Average backlog growth of 1% over the past two years was mediocre and suggests fewer customers signed long-term contracts

2. Free cash flow margin dropped by 73.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up

3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

FuelCell Energy’s stock price of $5.33 implies a valuation ratio of 0.6x forward price-to-sales. Read our free research report to see why you should think twice about including FCEL in your portfolio, it’s free .

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