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.
Workiva (WK)
Market Cap: $4.71 billion
Nicknamed "the Excel killer" by some finance professionals for its ability to eliminate spreadsheet chaos, Workiva (NYSE: WK) provides a cloud-based platform that enables organizations to streamline financial reporting, ESG, and compliance processes with connected data and automation.
Why Do We Think Twice About WK?
- Operating margin was unchanged over the last year, suggesting it failed to gain leverage on its fixed costs
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Workiva is trading at $84.08 per share, or 5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than WK.
Teladoc (TDOC)
Market Cap: $1.38 billion
Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE: TDOC) is a telemedicine platform that facilitates remote doctor’s visits.
Why Is TDOC Not Exciting?
- 4.4% annual revenue growth over the last three years was slower than its consumer internet peers
- Focus on expanding its platform came at the expense of monetization as its average revenue per user fell by 7.1% annually
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
Teladoc’s stock price of $7.82 implies a valuation ratio of 4.7x forward EV/EBITDA. Check out our free in-depth research report to learn more about why TDOC doesn’t pass our bar.
Dime Community Bancshares (DCOM)
Market Cap: $1.31 billion
With roots dating back to 1910 and a name that evokes the historic "dime savings banks" of America's past, Dime Community Bancshares (NASDAQ: DCOM) is a New York-based bank holding company that provides commercial banking and financial services to businesses and consumers throughout Greater Long Island.
Why Does DCOM Give Us Pause?
- Annual sales declines of 5.5% for the past two years show its products and services struggled to connect with the market during this cycle
- Inferior net interest margin of 2.6% means it must compensate for lower profitability through increased loan originations
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
At $29.86 per share, Dime Community Bancshares trades at 1x forward P/B. To fully understand why you should be careful with DCOM, check out our full research report (it’s free).
Stocks We Like More
When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.
Don’t let fear keep you from great opportunities and take a look at Top 6 Stocks for this week. 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
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