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.

These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.

Victoria's Secret (VSCO)

Market Cap: $5.04 billion

Spun off from L Brands in 2020, Victoria’s Secret (NYSE: VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.

Why Do We Avoid VSCO?

1. Flat sales over the last three years suggest it must innovate and find new ways to grow
2. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
3. Earnings per share have contracted by 19.1% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance

Victoria's Secret is trading at $63.34 per share, or 22.1x forward P/E. To fully understand why you should be careful with VSCO, check out our full research report (it’s free).

Kimball Electronics (KE)

Market Cap: $689.7 million

Founded in 1961, Kimball Electronics (NYSE: KE) is a global contract manufacturer specializing in electronics and manufacturing solutions for automotive, medical, and industrial markets.

Why Should You Sell KE?

1. Annual sales declines of 10.8% for the past two years show its products and services struggled to connect with the market during this cycle
2. Earnings per share have contracted by 2.4% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. Low free cash flow margin of -0.1% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

At $28.28 per share, Kimball Electronics trades at 22.5x forward P/E. Read our free research report to see why you should think twice about including KE in your portfolio.

Glacier Bancorp (GBCI)

Market Cap: $6.17 billion

Operating through seventeen distinct bank divisions with local brands and management teams, Glacier Bancorp (NYSE: GBCI) is a bank holding company that provides various banking services to individuals and businesses across eight western states.

Why Do We Steer Clear of GBCI?

1. Annual net interest income growth of 7.4% over the last five years was below our standards for the banking sector
2. Expenses have increased as a percentage of revenue over the last five years as its efficiency ratio degraded by 11.2 percentage points
3. Incremental sales over the last five years were much less profitable as its earnings per share fell by 3.2% annually while its revenue grew

Glacier Bancorp’s stock price of $47.47 implies a valuation ratio of 1.5x forward P/B. Dive into our free research report to see why there are better opportunities than GBCI.

High-Quality Stocks for All Market Conditions

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. Check out our Top 5 Growth Stocks for this month. 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today.