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.
Norwegian Cruise Line (NCLH)
Market cap: $8.54 billion
With amenities like a full go-kart race track built into its ships, Norwegian Cruise Line (NYSE: NCLH) is a premier global cruise company.
Why Is NCLH Risky?
- Performance surrounding its passenger cruise days has lagged its peers
- Free cash flow margin is forecasted to shrink by 2 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Norwegian Cruise Line’s stock price of $18.54 implies a valuation ratio of 13.9x forward P/E. Read our free research report to see why you should think twice about including NCLH in your portfolio.
Option Care Health (OPCH)
Market cap: $4.74 billion
With a nationwide network of 177 locations serving 43 states and a team of over 4,500 clinicians, Option Care Health (NASDAQ: OPCH) is the largest independent provider of home and alternate site infusion services, delivering medications and clinical support to patients across the United States.
Why Does OPCH Worry Us?
- Estimated sales growth of 4.8% for the next 12 months implies demand will slow from its two-year trend
- Costs have risen faster than its revenue over the last two years, causing its adjusted operating margin to decline by 1.1 percentage points
- 1.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Option Care Health is trading at $31.68 per share, or 15.6x forward P/E. To fully understand why you should be careful with OPCH, check out our full research report (it’s free).
Visteon (VC)
Market cap: $1.98 billion
Originally spun off from Ford Motor Company in 2000, Visteon (NYSE: VC) designs and manufactures cockpit electronics for vehicles, including digital instrument clusters, displays, infotainment systems, and battery management systems.
Why Is VC Not Exciting?
- Annual sales declines of 1.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share have dipped by 41.2% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
At $79.59 per share, Visteon trades at 7.8x forward P/E. Dive into our free research report to see why there are better opportunities than VC.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
