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.
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.
MasterCraft (MCFT)
Market Cap: $549.4 million
Started by a waterskiing instructor, MasterCraft (NASDAQ: MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Should You Dump MCFT?
- Annual revenue declines of 6.7% over the last five years indicate problems with its market positioning
- Low free cash flow margin of 7% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $22.86 per share, MasterCraft trades at 12.5x forward P/E. Check out our free in-depth research report to learn more about why MCFT doesn’t pass our bar.
Oceaneering (OII)
Market Cap: $3.97 billion
Deploying a fleet of 250 tethered underwater robots around the globe, Oceaneering International (NYSE: OII) provides remotely operated underwater vehicles and subsea equipment for offshore energy exploration.
Why Are We Out on OII?
- Sales were flat over the last ten years, indicating it’s failed to expand this cycle
- Gross margin of 17.4% reflects its high production costs and unfavorable asset base
- Poor free cash flow margin of 4.7% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Oceaneering is trading at $38.38 per share, or 1.4x forward price-to-sales. If you’re considering OII for your portfolio, see our FREE research report to learn more.
Expro (XPRO)
Market Cap: $1.86 billion
Operating in over 50 countries from deepwater offshore platforms to remote onshore fields, Expro (NYSE: XPRO) provides equipment and services that help oil and gas companies drill wells, measure production, and maintain well integrity.
Why Is XPRO Not Exciting?
- Subscale operations are evident in its revenue base of $1.58 billion, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 20% is below its competitors, leaving less money to invest in exploration and production
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Expro’s stock price of $15.85 implies a valuation ratio of 15.4x forward P/E. Dive into our free research report to see why there are better opportunities than XPRO.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.
