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 avoid and some other investments you should consider instead.
TPI Composites (TPIC)
Market Cap: $55.46 million
Founded in 1968, TPI Composites (NASDAQ: TPIC) manufactures composite wind turbine blades and provides related precision molding and assembly systems.
Why Should You Sell TPIC?
- Customers had second thoughts about committing to its offerings over the past two years as its billings averaged 11.5% declines
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
At $1.15 per share, TPI Composites trades at 1x forward EV-to-EBITDA. If you’re considering TPIC for your portfolio, see our FREE research report to learn more.
Stellar Bancorp (STEL)
Market Cap: $1.38 billion
Created through strategic mergers to serve the growing Texas business community, Stellar Bancorp (NYSE: STEL) is a Texas bank holding company that provides commercial banking services primarily to small and medium-sized businesses and professionals.
Why Does STEL Give Us Pause?
- Estimated net interest income growth of 2.3% for the next 12 months implies demand will slow from its four-year trend
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 2.8% annually over the last five years
Stellar Bancorp’s stock price of $26.88 implies a valuation ratio of 0.9x forward P/B. Read our free research report to see why you should think twice about including STEL in your portfolio.
Apollo Commercial Real Estate Finance (ARI)
Market Cap: $1.37 billion
Launched during the aftermath of the 2008 financial crisis to capitalize on disruption in commercial real estate lending, Apollo Commercial Real Estate Finance (NYSE: ARI) is a real estate investment trust that originates and invests in commercial mortgage loans and other real estate debt.
Why Are We Out on ARI?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 6.2% annually over the last two years
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 29.2% annually, worse than its revenue
- Annual tangible book value per share declines of 3% for the past five years show its capital management struggled during this cycle
Apollo Commercial Real Estate Finance is trading at $9.86 per share, or 0.8x forward P/B. To fully understand why you should be careful with ARI, check out our full research report (it’s free).
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Growth Stocks for this month. 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-small-cap company Comfort Systems (+782% 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
