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.
Lindsay (LNN)
Market Cap: $1.48 billion
A pioneer in the field of center pivot and lateral move irrigation, Lindsay (NYSE: LNN) provides a variety of proprietary water management and road infrastructure products and services.
Why Does LNN Give Us Pause?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Forecasted revenue decline of 2.6% for the upcoming 12 months implies demand will fall even further
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4% annually
At $136.41 per share, Lindsay trades at 21.4x forward P/E. To fully understand why you should be careful with LNN, check out our full research report (it’s free).
Insteel (IIIN)
Market Cap: $734.5 million
Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE: IIIN) provides steel wire reinforcing products for concrete.
Why Are We Cautious About IIIN?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 7% annually over the last two years
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Eroding returns on capital suggest its historical profit centers are aging
Insteel is trading at $37.84 per share, or 14.6x forward P/E. If you’re considering IIIN for your portfolio, see our FREE research report to learn more.
Lucid (LCID)
Market Cap: $5.16 billion
Founded by a former Tesla Vice President, Lucid Group (NASDAQ: LCID) designs, manufactures, and sells luxury electric vehicles with long-range capabilities.
Why Do We Think Twice About LCID?
- Negative 155% gross margin means it loses money on every sale and must pivot or scale quickly to survive
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Lucid’s stock price of $16.87 implies a valuation ratio of 26.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than LCID.
High-Quality Stocks for All Market Conditions
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 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-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
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