Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
GXO Logistics (GXO)
Market Cap: $6.02 billion
With notable customers such as Nike and Apple, GXO (NYSE: GXO) manages outsourced supply chains and warehousing for various companies.
Why Does GXO Worry Us?
- Earnings per share have dipped by 1.1% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- ROIC of 2.9% reflects management’s challenges in identifying attractive investment opportunities
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
GXO Logistics’s stock price of $52.74 implies a valuation ratio of 17.7x forward P/E. If you’re considering GXO for your portfolio, see our FREE research report to learn more.
Interface (TILE)
Market Cap: $1.66 billion
Pioneering carbon-neutral flooring since its founding in 1973, Interface (NASDAQ: TILE) is a global manufacturer of modular carpet tiles, luxury vinyl tile (LVT), and rubber flooring that specializes in carbon-neutral and sustainable flooring solutions.
Why Do We Think Twice About TILE?
- Annual revenue growth of 3.3% over the last five years was below our standards for the business services sector
- Anticipated sales growth of 4.4% for the next year implies demand will be shaky
- Earnings per share lagged its peers over the last five years as they only grew by 6.2% annually
Interface is trading at $28.43 per share, or 14.3x forward P/E. Check out our free in-depth research report to learn more about why TILE doesn’t pass our bar.
Integer Holdings (ITGR)
Market Cap: $2.59 billion
With its name reflecting the mathematical term for "whole" or "complete," Integer Holdings (NYSE: ITGR) is a medical device outsource manufacturer that produces components and systems for cardiac, vascular, neurological, and other medical applications.
Why Are We Cautious About ITGR?
- Smaller revenue base of $1.83 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
- Free cash flow margin shrank by 5.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $71.21 per share, Integer Holdings trades at 11.7x forward P/E. Read our free research report to see why you should think twice about including ITGR in your portfolio.
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 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.
