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 avoid and some other investments you should consider instead.
Figs (FIGS)
Market Cap: $1.25 billion
Rising to fame via TikTok and founded in 2013 by Heather Hasson and Trina Spear, Figs (NYSE: FIGS) is a healthcare apparel company known for its stylish approach to medical attire and uniforms.
Why Do We Think FIGS Will Underperform?
- Demand for its offerings was relatively low as its number of active customers has underwhelmed
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.7 percentage points
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $7.70 per share, Figs trades at 138.2x forward P/E. Read our free research report to see why you should think twice about including FIGS in your portfolio.
Interface (TILE)
Market Cap: $1.59 billion
Pioneering carbon-neutral flooring since its founding in 1973, Interface (NASDAQ: TILE) is a global manufacturer of modular carpet tiles, luxury vinyl tile (LVT), and rubber flooring that specializes in carbon-neutral and sustainable flooring solutions.
Why Are We Out on TILE?
- Sales trends were unexciting over the last five years as its 1.8% annual growth was below the typical business services company
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 2.5% annually
- Underwhelming 10.9% return on capital reflects management’s difficulties in finding profitable growth opportunities
Interface is trading at $27.23 per share, or 15.5x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why TILE doesn’t pass our bar.
Wintrust Financial (WTFC)
Market Cap: $8.57 billion
Founded in 1991 as a community-focused alternative to big banks in the Chicago area, Wintrust Financial (NASDAQGS:WTFC) operates community banks in the Chicago area and provides specialty finance services including insurance premium financing and wealth management.
Why Do We Think Twice About WTFC?
- High interest payments compared to its earnings raise concerns about its ability to service its debt consistently
Wintrust Financial’s stock price of $128.05 implies a valuation ratio of 1.3x forward P/B. Dive into our free research report to see why there are better opportunities than WTFC.
High-Quality Stocks for All Market Conditions
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. 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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