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.
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.
Guess (GES)
Market Cap: $879.8 million
Flexing the iconic upside-down triangle logo with a question mark, Guess (NYSE: GES) is a global fashion brand known for its trendy clothing, accessories, and denim wear.
Why Do We Avoid GES?
- Muted 8.7% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Guess’s stock price of $16.88 implies a valuation ratio of 10.7x forward P/E. Dive into our free research report to see why there are better opportunities than GES.
Timken (TKR)
Market Cap: $6.39 billion
Established after the founder noticed the difficulty freight wagons had making sharp turns, Timken (NYSE: TKR) is a provider of industrial parts used across various sectors.
Why Is TKR Risky?
- 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
- Anticipated sales growth of 2.5% for the next year implies demand will be shaky
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
At $91.69 per share, Timken trades at 15.8x forward P/E. If you’re considering TKR for your portfolio, see our FREE research report to learn more.
Collegium Pharmaceutical (COLL)
Market Cap: $1.49 billion
Pioneering abuse-deterrent technology in a field plagued by addiction concerns, Collegium Pharmaceutical (NASDAQ: COLL) develops and markets specialty medications for treating moderate to severe pain, including abuse-deterrent opioid formulations.
Why Are We Hesitant About COLL?
- Smaller revenue base of $757.1 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Collegium Pharmaceutical is trading at $47.05 per share, or 6.3x forward P/E. To fully understand why you should be careful with COLL, check out our full research report (it’s free).
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in 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 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
