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

Herbalife (HLF)

Market Cap: $1.02 billion

With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE: HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.

Why Do We Think Twice About HLF?

1. Shrinking unit sales over the past two years suggest it might have to lower prices to stimulate growth
2. Sales are projected to be flat over the next 12 months and imply weak demand
3. Earnings per share have dipped by 21.7% annually over the past three years, which is concerning because stock prices follow EPS over the long term

Herbalife is trading at $9.98 per share, or 4.9x forward P/E. If you’re considering HLF for your portfolio, see our FREE research report to learn more.

Dentsply Sirona (XRAY)

Market Cap: $3.32 billion

With roots dating back to 1877 when it introduced the first dental electric drill, Dentsply Sirona (NASDAQ: XRAY) manufactures and sells professional dental equipment, technologies, and consumable products used by dentists and specialists worldwide.

Why Are We Out on XRAY?

1. Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
2. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 7% annually, worse than its revenue
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $16.47 per share, Dentsply Sirona trades at 8.8x forward P/E. To fully understand why you should be careful with XRAY, check out our full research report (it’s free).

Walker & Dunlop (WD)

Market Cap: $2.56 billion

Originating as a small mortgage banking firm during the Great Depression in 1937, Walker & Dunlop (NYSE: WD) provides commercial real estate financing, property sales, appraisal, and investment management services with a focus on multifamily properties.

Why Does WD Worry Us?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.6% annually over the last two years
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 4.3% annually
3. Tangible book value per share tumbled by 3.9% annually over the last five years, showing bank sector trends are working against its favor during this cycle

Walker & Dunlop’s stock price of $75.36 implies a valuation ratio of 1.4x forward P/B. Read our free research report to see why you should think twice about including WD in your portfolio.

High-Quality Stocks for All Market Conditions

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum 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-micro-cap company Kadant (+351% 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