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.
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 pass on and some alternatives you should look into instead.
BJ's (BJRI)
Market cap: $1.22 billion
Founded in 1978 in California, BJ’s Restaurants (NASDAQ:BJRI) is a chain of restaurants whose menu features classic American dishes, often with a twist.
Why Do We Avoid BJRI?
- 3.3% annual revenue growth over the last seven years was slower than its restaurant peers
- Projected sales growth of 3.7% for the next 12 months suggests sluggish demand
- Challenging supply chain dynamics and bad unit economics are reflected in its low gross margin of 15.3%
BJ's is trading at $57.41 per share, or 22.3x forward P/E. Check out our free in-depth research report to learn more about why BJRI doesn’t pass our bar.
Lazard (LAZ)
Market cap: $3.73 billion
Tracing its roots back to 1848 when it began as a dry goods merchant in New Orleans, Lazard (NYSE:LAZ) is a global financial advisory and asset management firm that provides strategic advice to corporations, governments, institutions, and wealthy individuals.
Why Should You Sell LAZ?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Sales over the last five years were less profitable as its earnings per share fell by 18.7% annually while its revenue was flat
Lazard’s stock price of $38.20 implies a valuation ratio of 16x forward P/E. To fully understand why you should be careful with LAZ, check out our full research report (it’s free).
Dime Community Bancshares (DCOM)
Market cap: $1.86 billion
With roots dating back to 1910 and a name that evokes the historic "dime savings banks" of America's past, Dime Community Bancshares (NASDAQ:DCOM) is a New York-based bank holding company that provides commercial banking and financial services to businesses and consumers throughout Greater Long Island.
Why Are We Hesitant About DCOM?
- Annual net interest income growth of 7.9% over the last five years was below our standards for the banking sector
- Inferior net interest margin of 3.1% means it must compensate for lower profitability through increased loan originations
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.2% annually
At $42.51 per share, Dime Community Bancshares trades at 1.3x forward P/B. Dive into our free research report to see why there are better opportunities than DCOM.
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ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662% between October 2022 and February 2026. AppLovin before it ran 753% between February 2024 and February 2026. Nvidia before it ran 1,178% between January 2023 and February 2026. Each week it produces 6 new names that pass the same tests. Get Our Top 6 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-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.