Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.

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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Dayforce (DAY)

Market Cap: $9.10 billion

Founded in 1992 as Ceridian, an outsourced payroll processor and transformed after the 2012 acquisition of Dayforce, Dayforce (NYSE: DAY) is a provider of cloud based payroll and HR software targeted at mid-sized businesses.

Why Do We Think Twice About DAY?

1. Revenue increased by 19.8% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
2. Gross margin of 50.7% reflects its high servicing costs
3. Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 2.9 percentage points

At $57.10 per share, Dayforce trades at 4.8x forward price-to-sales. To fully understand why you should be careful with DAY, check out our full research report (it’s free).

ICU Medical (ICUI)

Market Cap: $3.52 billion

Founded in 1984, ICU Medical (NASDAQ: ICUI) provides medical devices and systems for infusion therapy, vascular access, and oncology (cancer) care.

Why Are We Cautious About ICUI?

1. 2% annual revenue growth over the last two years was slower than its healthcare peers
2. Projected sales decline of 1.4% for the next 12 months points to a tough demand environment ahead
3. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 4.1% annually

ICU Medical’s stock price of $142.50 implies a valuation ratio of 20.6x forward price-to-earnings. If you’re considering ICUI for your portfolio, see our FREE research report to learn more.

Repligen (RGEN)

Market Cap: $8.83 billion

Founded in 1981, Repligen Corporation (NASDAQ: RGEN) develops and manufactures advanced products used in the production of drugs, with a focus on filtration, chromatography, and process analytics.

Why Are We Out on RGEN?

1. Sales tumbled by 11% annually over the last two years, showing market trends are working against its favor during this cycle
2. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
3. Inability to adjust its cost structure while its revenue declined over the last two years led to a 16 percentage point drop in the company’s adjusted operating margin

Repligen is trading at $155.01 per share, or 92.3x forward price-to-earnings. Check out our free in-depth research report to learn more about why RGEN doesn’t pass our bar.

Stocks We Like More

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.