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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Macy's (M)
Market Cap: $6.01 billion
With a storied history that began with its 1858 founding, Macy’s (NYSE: M) is a department store chain that sells clothing, cosmetics, accessories, and home goods.
Why Is M Risky?
- Ongoing store closures and lackluster same-store sales indicate sluggish demand and a focus on consolidation
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
Macy’s stock price of $23.05 implies a valuation ratio of 10.6x forward P/E. Check out our free in-depth research report to learn more about why M doesn’t pass our bar.
Domino's (DPZ)
Market Cap: $9.67 billion
Founded by two brothers in Michigan, Domino’s (NASDAQ: DPZ) is a globally recognized pizza chain known for its creative marketing and fast delivery.
Why Are We Wary of DPZ?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Anticipated sales growth of 4.8% for the next year implies demand will be shaky
- Free cash flow margin has shown no improvement over the last year
At $294.15 per share, Domino's trades at 14.4x forward P/E. To fully understand why you should be careful with DPZ, check out our full research report (it’s free).
Northern Oil and Gas (NOG)
Market Cap: $2.46 billion
Taking the path less traveled in the oil industry by choosing not to operate its own wells, Northern Oil and Gas (NYSE: NOG) acquires minority stakes in oil and gas wells operated by other companies across major U.S. shale basins.
Why Are We Hesitant About NOG?
- Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 22.9 percentage points
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Northern Oil and Gas is trading at $23.33 per share, or 5.2x forward P/E. Read our free research report to see why you should think twice about including NOG in your portfolio.
Stocks We Like More
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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-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
