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.
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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Sprout Social (SPT)
Market Cap: $580.1 million
Born from the recognition that businesses needed a centralized way to handle their growing social media presence, Sprout Social (NASDAQ:SPT) provides a comprehensive software platform that helps businesses manage, analyze, and optimize their presence across various social media networks.
Why Are We Wary of SPT?
- Average billings growth of 11.1% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 10.8% for the next 12 months implies demand will slow from its two-year trend
- Rapid expansion strategy came at the expense of operating margin profitability
At $9.80 per share, Sprout Social trades at 1.2x forward price-to-sales. If you’re considering SPT for your portfolio, see our FREE research report to learn more.
Figs (FIGS)
Market Cap: $1.82 billion
Rising to fame via TikTok and founded in 2013 by Heather Hasson and Trina Spear, Figs (NYSE:FIGS) is a healthcare apparel company known for its stylish approach to medical attire and uniforms.
Why Are We Out on FIGS?
- Number of active customers has disappointed over the past two years, indicating weak demand for its offerings
- Low free cash flow margin of 6.4% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Returns on capital are increasing as management makes relatively better investment decisions
Figs’s stock price of $10.87 implies a valuation ratio of 113.1x forward P/E. Check out our free in-depth research report to learn more about why FIGS doesn’t pass our bar.
10x Genomics (TXG)
Market Cap: $2.83 billion
Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ:TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.
Why Does TXG Fall Short?
- 4.2% annual revenue growth over the last two years was slower than its healthcare peers
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Negative returns on capital show management lost money while trying to expand the business
10x Genomics is trading at $22.47 per share, or 4.8x forward price-to-sales. If you’re considering TXG for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Check out the high-quality names we’ve flagged in 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 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.