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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
The Trade Desk (TTD)
Market Cap: $5.72 billion
Built as an alternative to "walled garden" advertising ecosystems, The Trade Desk (NASDAQ: TTD) provides a cloud-based platform that helps advertisers and agencies plan, manage, and optimize digital advertising campaigns across multiple channels and devices.
Why Are We Cautious About TTD?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 12.3% underwhelmed
- Estimated sales decline of 14.7% for the next 12 months implies a challenging demand environment
- Free cash flow margin is forecasted to shrink by 7.8 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
The Trade Desk is trading at $12.09 per share, or 2.2x forward price-to-sales. If you’re considering TTD for your portfolio, see our FREE research report to learn more.
Titan International (TWI)
Market Cap: $438.9 million
Acquiring Goodyear’s farm tire business in 2005, Titan (NYSE: TWI) is a manufacturer and supplier of wheels, tires, and undercarriages used in off-highway vehicles such as construction vehicles.
Why Should You Sell TWI?
- Sales trends were unexciting over the last two years as its 1.7% annual growth was below the typical industrials company
- Eroding returns on capital suggest its historical profit centers are aging
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Titan International’s stock price of $6.80 implies a valuation ratio of 8.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including TWI in your portfolio.
Zions Bancorporation (ZION)
Market Cap: $9.14 billion
Founded in 1873 during Utah's pioneer era and named after Mount Zion in the Bible, Zions Bancorporation (NASDAQ: ZION) operates seven regional banks across the Western United States, providing commercial, retail, and wealth management services to over a million customers.
Why Does ZION Fall Short?
- Annual net interest income growth of 4.1% over the last five years was below our standards for the banking sector
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
- 2% annual tangible book value per share growth over the last five years was slower than its banking peers
At $62.35 per share, Zions Bancorporation trades at 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than ZION.
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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.
