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.
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.
eXp World (EXPI)
Market Cap: $1.70 billion
Founded in 2009, eXp World (NASDAQ: EXPI) is a real estate company known for its virtual, cloud-based approach to real estate brokerage.
Why Are We Out on EXPI?
- Sluggish trends in its transactions suggest customers aren’t adopting its solutions as quickly as the company hoped
- Poor expense management has led to an operating margin of -0.5% that is below the industry average
- Earnings per share fell by 12.2% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
eXp World is trading at $11.04 per share, or 23.8x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than EXPI.
Taylor Morrison Home (TMHC)
Market Cap: $6.66 billion
Named “America’s Most Trusted Home Builder” in 2019, Taylor Morrison Home (NYSE: TMHC) builds single family homes and communities across the United States.
Why Do We Avoid TMHC?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 12.7% declines over the past two years
- Forecasted revenue decline of 8.2% for the upcoming 12 months implies demand will fall off a cliff
- Earnings per share have dipped by 2.1% annually over the past two years, which is concerning because stock prices follow EPS over the long term
Taylor Morrison Home’s stock price of $68.75 implies a valuation ratio of 8.8x forward P/E. If you’re considering TMHC for your portfolio, see our FREE research report to learn more.
Main Street Capital (MAIN)
Market Cap: $5.93 billion
With a focus on building long-term partnerships rather than quick transactions, Main Street Capital (NYSE: MAIN) is a business development company that provides long-term debt and equity capital to lower middle market and middle market companies.
Why Is MAIN Not Exciting?
- Performance over the past two years shows its incremental sales were less profitable, as its 1.7% annual earnings per share growth trailed its revenue gains
At $66.12 per share, Main Street Capital trades at 17.1x forward P/E. To fully understand why you should be careful with MAIN, check out our full research report (it’s free).
Stocks We Like More
When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.
Don’t let fear keep you from great opportunities and take a look at 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 Tecnoglass (+1,754% 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.
