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 avoid and some other investments you should consider instead.
Tilly's (TLYS)
Market Cap: $161.9 million
With an emphasis on skate and surf culture, Tilly’s (NYSE: TLYS) is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.
Why Should You Sell TLYS?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Persistent operating margin losses suggest the business manages its expenses poorly
At $4.25 per share, Tilly's trades at 44.1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why TLYS doesn’t pass our bar.
Boise Cascade (BCC)
Market Cap: $2.49 billion
Formed through the merger of two lumber companies, Boise Cascade Company (NYSE: BCC) manufactures and distributes wood products and other building materials.
Why Do We Steer Clear of BCC?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.2% annually over the last two years
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.5 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Boise Cascade’s stock price of $73.38 implies a valuation ratio of 18.4x forward P/E. If you’re considering BCC for your portfolio, see our FREE research report to learn more.
Ocular Therapeutix (OCUL)
Market Cap: $1.90 billion
Pioneering a drug delivery platform that can eliminate the need for monthly eye injections, Ocular Therapeutix (NASDAQ: OCUL) develops sustained-release treatments for eye diseases using its proprietary ELUTYX bioresorbable hydrogel technology that gradually releases medication.
Why Is OCUL Risky?
- Sales tumbled by 6.7% annually over the last two years, showing market trends are working against it during this cycle
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 422.2 percentage points
- 325.1 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
Ocular Therapeutix is trading at $10.24 per share, or 41.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than OCUL.
High-Quality Stocks for All Market Conditions
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
