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.
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.
Grocery Outlet (GO)
Market Cap: $1.07 billion
Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ:GO) is a discount grocery store chain that offers substantial discounts on name-brand products.
Why Do We Pass on GO?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 8.8 percentage points
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Grocery Outlet’s stock price of $10.82 implies a valuation ratio of 17.3x forward P/E. To fully understand why you should be careful with GO, check out our full research report (it’s free).
Hilltop Holdings (HTH)
Market Cap: $2.28 billion
Transformed from a residential communities business to a financial services powerhouse in 2007, Hilltop Holdings (NYSE:HTH) is a Texas-based financial holding company that provides banking, broker-dealer, and mortgage origination services.
Why Is HTH Risky?
- Muted 1.4% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Overall productivity is expected to fall over the next year as Wall Street thinks its potential sales declines will be accompanied by a 30.3 percentage point degradation in its efficiency ratio
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 13.8% annually, worse than its revenue
At $39.78 per share, Hilltop Holdings trades at 1x forward P/B. If you’re considering HTH for your portfolio, see our FREE research report to learn more.
Range Resources (RRC)
Market Cap: $9.33 billion
Focused almost entirely on the Marcellus Shale beneath Pennsylvania's forests and farmland, Range Resources (NYSE:RRC) drills for and produces natural gas, natural gas liquids, and oil from shale formations.
Why Are We Cautious About RRC?
- 8.6% annual revenue growth over the last five years was slower than its energy upstream and integrated energy peers
- Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 5.1 percentage points
Range Resources is trading at $39.99 per share, or 10.6x forward P/E. Check out our free in-depth research report to learn more about why RRC doesn’t pass our bar.
Stocks We Like More
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.