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 pass on and some alternatives you should look into instead.
Cars.com (CARS)
Market Cap: $627.9 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 Are We Wary of CARS?
- Increasing competition is redirecting attention to other platforms as it failed to grow its dealer customers over the last two years
- Underwhelming performance in both user spending and platform engagement suggests its platform is becoming less effective
- Earnings per share have contracted by 15.6% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
Cars.com is trading at $11.87 per share, or 5x forward EV/EBITDA. Check out our free in-depth research report to learn more about why CARS doesn’t pass our bar.
Hayward (HAYW)
Market Cap: $2.95 billion
Credited with introducing the first variable-speed pool pump, Hayward (NYSE: HAYW) makes residential and commercial pool equipment and accessories.
Why Does HAYW Fall Short?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 3.1 percentage points
- Earnings per share have dipped by 22.8% annually over the past five years, which is concerning because stock prices follow EPS over the long term
Hayward’s stock price of $13.92 implies a valuation ratio of 15.1x forward P/E. If you’re considering HAYW for your portfolio, see our FREE research report to learn more.
Fulton Financial (FULT)
Market Cap: $4.60 billion
Tracing its roots back to 1882 in the heart of Pennsylvania, Fulton Financial (NASDAQ: FULT) is a financial holding company that provides banking, lending, and wealth management services to consumers and businesses across five Mid-Atlantic states.
Why Are We Hesitant About FULT?
- 9.3% annual revenue growth over the last five years was slower than its banking peers
- Annual earnings per share growth of 5.2% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Projected tangible book value per share growth of 10.3% for the next 12 months suggests sluggish capital generation
At $24.09 per share, Fulton Financial trades at 1.2x forward P/B. To fully understand why you should be careful with FULT, check out our full research report (it’s free).
Stocks We Like More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
