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.
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.
YETI (YETI)
Market Cap: $3.33 billion
Founded by two brothers from Texas, YETI (NYSE: YETI) specializes in durable outdoor goods including coolers, drinkware, and other gear tailored to adventure enthusiasts.
Why Should You Sell YETI?
- 10.3% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Free cash flow margin is forecasted to shrink by 2.2 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
YETI’s stock price of $44.39 implies a valuation ratio of 15.1x forward P/E. Check out our free in-depth research report to learn more about why YETI doesn’t pass our bar.
Lucid (LCID)
Market Cap: $2.28 billion
Founded by a former Tesla Vice President, Lucid Group (NASDAQ: LCID) designs, manufactures, and sells luxury electric vehicles with long-range capabilities.
Why Is LCID Not Exciting?
- Negative 136% gross margin means it loses money on every sale and must pivot or scale quickly to survive
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $5.84 per share, Lucid trades at 0.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than LCID.
Frost Bank (CFR)
Market Cap: $8.73 billion
Tracing its roots back to 1868 when it was founded during Texas's post-Civil War reconstruction era, Cullen/Frost Bankers (NYSE: CFR) operates Frost Bank, a Texas-based financial institution providing commercial and consumer banking, wealth management, and insurance services.
Why Does CFR Fall Short?
- Sales trends were unexciting over the last two years as its 7% annual growth was below the typical banking company
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 7.5% annually
- Forecasted tangible book value per share decline of 7.4% for the upcoming 12 months implies profitability will deteriorate significantly
Frost Bank is trading at $138.97 per share, or 1.9x forward P/B. To fully understand why you should be careful with CFR, check out our full research report (it’s free).
Stocks We Like More
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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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
