3 Small-Cap Stocks with Mounting Challenges

July 08, 2025 at 00:32 AM EDT

DDD Cover Image

Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.

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 swipe left on and some alternatives you should look into instead.

3D Systems (DDD)

Market Cap: $223.7 million

Founded by the inventor of stereolithography, 3D Systems (NYSE: DDD) engineers, manufactures, and sells 3D printers and other related products to the aerospace, automotive, healthcare, and consumer goods industries.

Why Do We Steer Clear of DDD?

Customers postponed purchases of its products and services this cycle as its revenue declined by 6.9% annually over the last five years
Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

3D Systems’s stock price of $1.63 implies a valuation ratio of 0.5x forward price-to-sales. Check out our free in-depth research report to learn more about why DDD doesn’t pass our bar.

First Bancorp (FBNC)

Market Cap: $1.93 billion

Founded during the Great Depression in 1934 and originally known as Montgomery Bancorp, First Bancorp (NASDAQ: FBNC) is a community-oriented commercial bank providing a wide range of financial services to businesses and individuals in North and South Carolina.

Why Are We Wary of FBNC?

Customers postponed purchases of its products and services this cycle as its revenue declined by 5% annually over the last two years
28.3 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the company’s willingness to accept lower yields to defend its market position
Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable

First Bancorp is trading at $46.62 per share, or 1.2x forward P/B. To fully understand why you should be careful with FBNC, check out our full research report (it’s free).

Ellington Financial (EFC)

Market Cap: $1.23 billion

Operating under the guidance of Ellington Management Group, a respected name in structured credit markets, Ellington Financial (NYSE: EFC) acquires and manages a diverse portfolio of mortgage-related, consumer-related, and other financial assets to generate returns for investors.

Why Do We Think EFC Will Underperform?

Muted 1.5% annual revenue growth over the last two years shows its demand lagged behind its bank peers
Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2% annually
Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 2.2% annually over the last five years

At $13.01 per share, Ellington Financial trades at 1x forward P/B. If you’re considering EFC for your portfolio, see our FREE research report to learn more.

Stocks We Like More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking 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-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

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3 Small-Cap Stocks with Mounting Challenges

3D Systems (DDD)

First Bancorp (FBNC)

Ellington Financial (EFC)

Stocks We Like More

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