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.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Asana (ASAN)
Market Cap: $2.34 billion
Born from the founders' frustration with the inefficiencies of email-based collaboration at Facebook, Asana (NYSE:ASAN) provides a work management platform that helps organizations track projects, set goals, and manage workflows in a centralized digital workspace.
Why Do We Pass on ASAN?
- Customers were hesitant to make long-term commitments to its software as its 9.6% average ARR growth over the last year was sluggish
- Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 96% net revenue retention rate
- Software platform has intricate integration requirements for its enterprise clients, triggering long sales cycles that limit new customer additions
At $10.24 per share, Asana trades at 2.6x forward price-to-sales. Read our free research report to see why you should think twice about including ASAN in your portfolio.
Fluence Energy (FLNC)
Market Cap: $1.64 billion
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ:FLNC) helps store renewable energy sources with battery systems.
Why Does FLNC Give Us Pause?
- Historically negative EPS raises concerns for risk-averse investors and makes its earnings potential harder to gauge
- Negative free cash flow raises questions about the return timeline for its investments
- Unprofitable operations could lead to additional rounds of dilutive equity financing if the credit window closes
Fluence Energy is trading at $11.38 per share, or 74.3x forward P/E. Check out our free in-depth research report to learn more about why FLNC doesn’t pass our bar.
Luxfer (LXFR)
Market Cap: $458.7 million
With its magnesium alloys used in the construction of the famous Spirit of St. Louis aircraft, Luxfer (NYSE:LXFR) offers specialized materials, components, and gas containment devices to various industries.
Why Are We Wary of LXFR?
- Annual sales declines of 2.3% for the past two years show its products and services struggled to connect with the market during this cycle
- Estimated sales growth of 2.7% for the next 12 months is soft and implies weaker demand
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
Luxfer’s stock price of $17.15 implies a valuation ratio of 13.2x forward P/E. If you’re considering LXFR for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.