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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Academy Sports (ASO)
Market Cap: $3.19 billion
Founded in 1938 as a tire shop before expanding into fishing equipment, Academy Sports & Outdoor (NASDAQ: ASO) sells a broad selection of sporting goods but is still known for its outdoor activity merchandise.
Why Does ASO Give Us Pause?
- Annual revenue growth of 4% over the last six years was below our standards for the consumer retail sector
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Earnings per share have contracted by 2.5% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
Academy Sports’s stock price of $47.81 implies a valuation ratio of 7.7x forward P/E. If you’re considering ASO for your portfolio, see our FREE research report to learn more.
Lindblad Expeditions (LIND)
Market Cap: $711.2 million
Founded by explorer Sven-Olof Lindblad in 1979, Lindblad Expeditions (NASDAQ: LIND) offers cruising experiences to remote destinations in partnership with National Geographic.
Why Is LIND Risky?
- Poor expense management has led to an operating margin of 3.8% that is below the industry average
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 2.2 percentage points over the next year
- Negative returns on capital show management lost money while trying to expand the business
Lindblad Expeditions is trading at $12.98 per share, or 6.4x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than LIND.
Guardant Health (GH)
Market Cap: $7.38 billion
Pioneering the field of "liquid biopsy" with technology that can identify cancer-specific genetic mutations from a simple blood draw, Guardant Health (NASDAQ: GH) develops blood tests that detect and monitor cancer by analyzing tumor DNA in the bloodstream, helping doctors make treatment decisions without invasive biopsies.
Why Are We Wary of GH?
- Issuance of new shares over the last five years caused its earnings per share to fall by 19.6% annually while its revenue grew
- Negative free cash flow raises questions about the return timeline for its investments
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $59.14 per share, Guardant Health trades at 7.3x forward price-to-sales. Check out our free in-depth research report to learn more about why GH doesn’t pass our bar.
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 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 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 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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