3 Small-Cap Stocks We Approach with Caution

September 01, 2025 at 00:40 AM EDT

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

Nextdoor (KIND)

Market Cap: $793.9 million

Helping residents figure out what's happening on their block in real time, Nextdoor (NYSE: KIND) is a social network that connects neighbors with each other and with local businesses.

Why Are We Cautious About KIND?

Modest 6.5% annual growth in weekly active users over the last two years indicates potential challenges in customer acquisition and retention
Persistent EBITDA margin losses suggest the business manages its expenses poorly
Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

Nextdoor is trading at $1.89 per share, or 3.2x forward price-to-gross profit. If you’re considering KIND for your portfolio, see our FREE research report to learn more.

Movado (MOV)

Market Cap: $404.5 million

With its watches displayed in 20 museums around the world, Movado (NYSE: MOV) is a watchmaking company with a portfolio of watch brands and accessories.

Why Should You Dump MOV?

Annual revenue declines of 4.3% over the last two years indicate problems with its market positioning
Anticipated sales growth of 1.5% for the next year implies demand will be shaky
Waning returns on capital imply its previous profit engines are losing steam

At $18.20 per share, Movado trades at 0.6x trailing 12-month price-to-sales. Check out our free in-depth research report to learn more about why MOV doesn’t pass our bar.

GEO Group (GEO)

Market Cap: $2.88 billion

With a global footprint spanning three continents and approximately 81,000 beds across 100 facilities, GEO Group (NYSE: GEO) operates secure facilities, processing centers, and reentry services for government agencies in the United States, Australia, and South Africa.

Why Do We Think GEO Will Underperform?

Sales stagnated over the last five years and signal the need for new growth strategies
Sales over the last five years were less profitable as its earnings per share fell by 12% annually while its revenue was flat
Free cash flow margin dropped by 7.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up

GEO Group’s stock price of $20.41 implies a valuation ratio of 11.1x forward P/E. Dive into our free research report to see why there are better opportunities than GEO.

Stocks We Like More

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3 Small-Cap Stocks We Approach with Caution

Nextdoor (KIND)

Movado (MOV)

GEO Group (GEO)

Stocks We Like More

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