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.
BlackLine (BL)
Market Cap: $3.22 billion
Born from the vision to eliminate tedious manual spreadsheet work for accountants, BlackLine (NASDAQ: BL) provides cloud-based software that automates and streamlines financial close, intercompany accounting, and invoice-to-cash processes for accounting departments.
Why Does BL Fall Short?
- Products, pricing, or go-to-market strategy may need some adjustments as its 7.2% average billings growth over the last year was weak
- Customers generally do not adopt complementary products as its 103% net revenue retention rate lags behind the industry standard
- Operating margin was unchanged over the last year, suggesting it failed to gain leverage on its fixed costs
At $53.76 per share, BlackLine trades at 4.6x forward price-to-sales. To fully understand why you should be careful with BL, check out our full research report (it’s free for active Edge members).
Vishay Intertechnology (VSH)
Market Cap: $1.68 billion
Named after the founder's ancestral village in present-day Lithuania, Vishay Intertechnology (NYSE: VSH) manufactures simple chips and electronic components that are building blocks of virtually all types of electronic devices.
Why Should You Sell VSH?
- Annual sales declines of 7.3% for the past two years show its products and services struggled to connect with the market during this cycle
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 21.1%
- Free cash flow margin dropped by 16 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Vishay Intertechnology is trading at $12.31 per share, or 24.4x forward P/E. Check out our free in-depth research report to learn more about why VSH doesn’t pass our bar.
IPG Photonics (IPGP)
Market Cap: $3.19 billion
Both a designer and manufacturer of its products, IPG Photonics (NASDAQ: IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials.
Why Do We Steer Clear of IPGP?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 3.8% annually over the last five years
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 15.1 percentage points
IPG Photonics’s stock price of $76.01 implies a valuation ratio of 56.2x forward P/E. If you’re considering IPGP for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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-micro-cap company Kadant (+351% 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
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
