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.
Atkore (ATKR)
Market Cap: $2.24 billion
Protecting the things that power our world, Atkore (NYSE: ATKR) designs and manufactures electrical safety products.
Why Do We Steer Clear of ATKR?
- 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
- Free cash flow margin dropped by 7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Waning returns on capital imply its previous profit engines are losing steam
Atkore’s stock price of $66.39 implies a valuation ratio of 12.4x forward P/E. Read our free research report to see why you should think twice about including ATKR in your portfolio.
Hillman (HLMN)
Market Cap: $1.83 billion
Established when Max Hillman purchased a franchise operation, Hillman (NASDAQ: HLMN) designs, manufactures, and sells industrial equipment and systems for various sectors.
Why Is HLMN Not Exciting?
- 1.9% annual revenue growth over the last two years was slower than its industrials peers
- Poor free cash flow margin of 2.5% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- ROIC of 2.4% reflects management’s challenges in identifying attractive investment opportunities
Hillman is trading at $9.28 per share, or 15.4x forward P/E. To fully understand why you should be careful with HLMN, check out our full research report (it’s free for active Edge members).
ArcBest (ARCB)
Market Cap: $1.84 billion
Historically owning furniture, banking, and other subsidiaries, ArcBest (NASDAQ: ARCB) offers full-truckload, less-than-truckload, and intermodal deliveries of freight.
Why Should You Sell ARCB?
- Flat unit sales over the past two years imply it may need to invest in improvements to get back on track
- Sales were less profitable over the last two years as its earnings per share fell by 23.1% annually, worse than its revenue declines
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $81.68 per share, ArcBest trades at 20.2x forward P/E. Check out our free in-depth research report to learn more about why ARCB doesn’t pass our bar.
Stocks We Like More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today.
