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.
UiPath (PATH)
Market Cap: $7.73 billion
Starting with robotic process automation (RPA) and evolving into a comprehensive automation powerhouse, UiPath (NYSE: PATH) provides an AI-powered business automation platform that enables organizations to create software robots that mimic human actions to streamline repetitive tasks and processes.
Why Are We Hesitant About PATH?
- Customers had second thoughts about committing to its platform over the last year as its billings plateaued
- Estimated sales growth of 9.6% for the next 12 months implies demand will slow from its two-year trend
- Poor expense management has led to operating margin losses
UiPath is trading at $14.55 per share, or 4.8x forward price-to-sales. To fully understand why you should be careful with PATH, check out our full research report (it’s free for active Edge members).
ThredUp (TDUP)
Market Cap: $994.9 million
Founded to revolutionize thrifting, ThredUp (NASDAQ: TDUP) is a leading online fashion resale marketplace offering a wide selection of gently-used clothing and accessories.
Why Does TDUP Give Us Pause?
- Sluggish trends in its orders suggest customers aren’t adopting its solutions as quickly as the company hoped
- Historical operating margin losses point to an inefficient cost structure
- Cash-burning history makes us doubt the long-term viability of its business model
At $8.15 per share, ThredUp trades at 61.1x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than TDUP.
Columbus McKinnon (CMCO)
Market Cap: $448.8 million
With 19 different brands across the globe, Columbus McKinnon (NASDAQ: CMCO) offers material handling equipment for the construction, manufacturing, and transportation industries.
Why Should You Dump CMCO?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Sales over the last two years were less profitable as its earnings per share fell by 11.3% annually while its revenue was flat
- Free cash flow margin shrank by 3.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Columbus McKinnon’s stock price of $15 implies a valuation ratio of 5.8x forward P/E. If you’re considering CMCO for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
Fresh US-China trade tensions just tanked stocks—but strong bank earnings are fueling a sharp rebound. Don’t miss the bounce.
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 Exlservice (+354% 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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