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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Nextdoor (KIND)
Market Cap: $793.9 million
Helping residents figure out what's happening on their block in real time, Nextdoor (NYSE: KIND) is a social network that connects neighbors with each other and with local businesses.
Why Are We Cautious About KIND?
- Modest 6.5% annual growth in weekly active users over the last two years indicates potential challenges in customer acquisition and retention
- Persistent EBITDA margin losses suggest the business manages its expenses poorly
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Nextdoor is trading at $1.89 per share, or 3.2x forward price-to-gross profit. If you’re considering KIND for your portfolio, see our FREE research report to learn more.
Movado (MOV)
Market Cap: $404.5 million
With its watches displayed in 20 museums around the world, Movado (NYSE: MOV) is a watchmaking company with a portfolio of watch brands and accessories.
Why Should You Dump MOV?
- Annual revenue declines of 4.3% over the last two years indicate problems with its market positioning
- Anticipated sales growth of 1.5% for the next year implies demand will be shaky
- Waning returns on capital imply its previous profit engines are losing steam
At $18.20 per share, Movado trades at 0.6x trailing 12-month price-to-sales. Check out our free in-depth research report to learn more about why MOV doesn’t pass our bar.
GEO Group (GEO)
Market Cap: $2.88 billion
With a global footprint spanning three continents and approximately 81,000 beds across 100 facilities, GEO Group (NYSE: GEO) operates secure facilities, processing centers, and reentry services for government agencies in the United States, Australia, and South Africa.
Why Do We Think GEO Will Underperform?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Sales over the last five years were less profitable as its earnings per share fell by 12% annually while its revenue was flat
- Free cash flow margin dropped by 7.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
GEO Group’s stock price of $20.41 implies a valuation ratio of 11.1x forward P/E. Dive into our free research report to see why there are better opportunities than GEO.
Stocks We Like More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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-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
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
