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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.

Newmark (NMRK)

Market Cap: $3.12 billion

Founded in 1929, Newmark (NASDAQ: NMRK) provides commercial real estate services, including leasing advisory, global corporate services, investment sales and capital markets, property and facilities management, valuation and advisory, and consulting.

Why Is NMRK Risky?

1. Annual revenue growth of 10.3% over the last five years was below our standards for the consumer discretionary sector
2. Negative free cash flow raises questions about the return timeline for its investments
3. Underwhelming 2.6% return on capital reflects management’s difficulties in finding profitable growth opportunities

Newmark is trading at $17.30 per share, or 9.9x forward P/E. Check out our free in-depth research report to learn more about why NMRK doesn’t pass our bar.

Casella Waste Systems (CWST)

Market Cap: $5.55 billion

Starting with the founder picking up garbage with a pickup truck he purchased using savings from high school, Casella (NASDAQ: CWST) offers waste management services for businesses, residents, and the government.

Why Do We Think Twice About CWST?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 5 percentage points
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up

Casella Waste Systems’s stock price of $87.38 implies a valuation ratio of 72.3x forward P/E. To fully understand why you should be careful with CWST, check out our full research report (it’s free for active Edge members).

The Hanover Insurance Group (THG)

Market Cap: $6.49 billion

Founded in 1852 during a time when fire insurance was crucial for protecting businesses and homes, The Hanover Insurance Group (NYSE: THG) provides property and casualty insurance products through independent agents, serving individuals, small businesses, and mid-sized companies.

Why Are We Wary of THG?

1. 5.1% annual revenue growth over the last two years was slower than its insurance peers
2. 4.6% annualized net premiums earned growth over the last two years lagged behind its insurance peers
3. 2.6% annual book value per share growth over the last five years was slower than its insurance peers

At $182.50 per share, The Hanover Insurance Group trades at 1.8x forward P/B. If you’re considering THG for your portfolio, see our FREE research report to learn more.

Stocks We Like More

Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.

The names generating the next wave of massive growth are right here in our Top 5 Strong Momentum Stocks for this week. 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 (+1,545% between March 2020 and March 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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