Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
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.
SiteOne (SITE)
Market Cap: $3.95 billion
Known for distributing John Deere tractors and LESCO turf care products, SiteOne Landscape Supply (NYSE:SITE) provides landscaping products and services to professionals, including irrigation, lighting, and nursery supplies.
Why Should You Sell SITE?
- 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
- Earnings per share were flat over the last five years and fell short of the peer group average
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
SiteOne is trading at $90.45 per share, or 18.6x forward P/E. To fully understand why you should be careful with SITE, check out our full research report (it’s free).
Kyndryl (KD)
Market Cap: $2.50 billion
Born from IBM's managed infrastructure services business in a 2021 spinoff, Kyndryl (NYSE:KD) is the world's largest IT infrastructure services provider that designs, builds, and manages technology environments for enterprise customers.
Why Are We Hesitant About KD?
- Annual sales declines of 5% for the past five years show its products and services struggled to connect with the market during this cycle
- Projected sales decline of 1% over the next 12 months indicates demand will continue deteriorating
- Negative returns on capital show that some of its growth strategies have backfired
At $11.45 per share, Kyndryl trades at 4.7x forward P/E. Check out our free in-depth research report to learn more about why KD doesn’t pass our bar.
RUM Group (RUM)
Market Cap: $3.06 billion
Founded in 2013 as a champion for content creator rights and free expression, RUM Group (NASDAQ:RUM) is a video sharing platform that positions itself as a free speech alternative to mainstream platforms, offering creators more favorable revenue-sharing opportunities.
Why Do We Think Twice About RUM?
- 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
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
RUM Group’s stock price of $7.68 implies a valuation ratio of 56x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including RUM in your portfolio.
Stocks We Like More
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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-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.