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.
Post (POST)
Market Cap: $5.15 billion
Founded in 1895, Post (NYSE: POST) is a packaged food company known for its namesake breakfast cereal and healthier-for-you snacks.
Why Are We Wary of POST?
- Declining unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its three-year trend
- Underwhelming 5.7% return on capital reflects management’s difficulties in finding profitable growth opportunities
Post is trading at $98.72 per share, or 14x forward P/E. To fully understand why you should be careful with POST, check out our full research report (it’s free for active Edge members).
Sirius XM (SIRI)
Market Cap: $7.32 billion
Known for its commercial-free music channels, Sirius XM (NASDAQ: SIRI) is a broadcasting company that provides satellite radio and online radio services across North America.
Why Should You Sell SIRI?
- Performance surrounding its core subscribers has lagged its peers
- Low free cash flow margin of 12.3% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $21.76 per share, Sirius XM trades at 7.2x forward P/E. Read our free research report to see why you should think twice about including SIRI in your portfolio.
Planet Fitness (PLNT)
Market Cap: $9.01 billion
Founded by two brothers who purchased a struggling gym, Planet Fitness (NYSE: PLNT) is a gym franchise that caters to casual fitness users by providing a friendly and inclusive atmosphere.
Why Are We Out on PLNT?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Free cash flow margin is anticipated to expand by 1.6 percentage points over the next year, providing additional flexibility for investments and share buybacks/dividends
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Planet Fitness’s stock price of $108.68 implies a valuation ratio of 32.1x forward P/E. Dive into our free research report to see why there are better opportunities than PLNT.
Stocks We Like More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 6 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-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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