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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
National Vision (EYE)
Market Cap: $1.98 billion
Operating under multiple brands, National Vision (NYSE: EYE) sells optical products such as eyeglasses and provides optical services such as eye exams.
Why Do We Steer Clear of EYE?
- Store closures are a headwind for growth and suggest it’s rightsizing operations to optimize sales at existing locations
- Poor expense management has led to an operating margin of 0.3% that is below the industry average
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up
National Vision’s stock price of $24.30 implies a valuation ratio of 41.4x forward P/E. Dive into our free research report to see why there are better opportunities than EYE.
CSG (CSGS)
Market Cap: $1.73 billion
Powering billions of critical customer interactions annually, CSG Systems (NASDAQ: CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.
Why Is CSGS Risky?
- 3.4% annual revenue growth over the last two years was slower than its business services peers
- Anticipated sales growth of 2.5% for the next year implies demand will be shaky
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $62.59 per share, CSG trades at 13.1x forward P/E. Check out our free in-depth research report to learn more about why CSGS doesn’t pass our bar.
Brighthouse Financial (BHF)
Market Cap: $2.82 billion
Spun off from MetLife in 2017 to focus specifically on retail financial products, Brighthouse Financial (NASDAQ: BHF) provides annuity contracts and life insurance products designed to help individuals protect wealth, generate income, and transfer assets.
Why Are We Out on BHF?
- Annual net premiums earned declines of 2.4% for the past five years show its policy sales struggled during this cycle
- Day-to-day expenses have swelled relative to revenue over the last two years as its pre-tax profit margin fell by 19.5 percentage points
- Book value per share tumbled by 14.9% annually over the last five years, showing insurance sector trends are working against its favor during this cycle
Brighthouse Financial is trading at $49.26 per share, or 0.7x forward P/B. Dive into our free research report to see why there are better opportunities than BHF.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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 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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