3 Small-Cap Stocks in the Doghouse

March 21, 2025 at 09:02 AM EDT

LTH Cover Image

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.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Life Time (LTH)

Market Cap: $6.74 billion

With over 150 locations and gyms that include saunas and steam rooms, Life Time (NYSE: LTH) is an upscale fitness club emphasizing holistic well-being and fitness.

Why Are We Cautious About LTH?

Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
Negative free cash flow raises questions about the return timeline for its investments
High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Life Time is trading at $30.86 per share, or 26.7x forward price-to-earnings. Read our free research report to see why you should think twice about including LTH in your portfolio.

eXp World (EXPI)

Market Cap: $1.52 billion

Founded in 2009, eXp World (NASDAQ: EXPI) is a real estate company known for its virtual, cloud-based approach to real estate brokerage.

Why Should You Sell EXPI?

Performance surrounding its agents and brokers has lagged its peers
Operating margin of -0.2% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
Negative returns on capital show that some of its growth strategies have backfired

At $9.86 per share, eXp World trades at 12.6x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than EXPI.

Kennametal (KMT)

Market Cap: $1.67 billion

Involved in manufacturing hard tips of anti-tank projectiles in World War II, Kennametal (NYSE: KMT) is a provider of industrial materials and tools for various sectors.

Why Is KMT Risky?

Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
Forecasted revenue decline of 2% for the upcoming 12 months implies demand will fall off a cliff
Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term

Kennametal’s stock price of $21.61 implies a valuation ratio of 14.2x forward price-to-earnings. Check out our free in-depth research report to learn more about why KMT doesn’t pass our bar.

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3 Small-Cap Stocks in the Doghouse

Life Time (LTH)

eXp World (EXPI)

Kennametal (KMT)

Stocks We Like More

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