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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
nCino (NCNO)
Market Cap: $1.61 billion
Born from the internal technology needs of a community bank in 2011, nCino (NASDAQ: NCNO) provides cloud-based software that helps financial institutions streamline client onboarding, loan origination, and account opening processes.
Why Are We Cautious About NCNO?
- Products, pricing, or go-to-market strategy may need some adjustments as its 9.5% average billings growth over the last year was weak
- Estimated sales growth of 7.6% for the next 12 months implies demand will slow from its two-year trend
- Gross margin of 61.6% reflects its relatively high servicing costs
nCino’s stock price of $14.80 implies a valuation ratio of 2.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than NCNO.
Marqeta (MQ)
Market Cap: $1.60 billion
Powering the cards behind innovative fintech services like Block's Cash App, Marqeta (NASDAQ: MQ) provides a cloud-based platform that allows businesses to create customized payment card programs and process card transactions.
Why Does MQ Give Us Pause?
- 6.3% annual revenue growth over the last two years was slower than its software peers
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Efficiency has decreased over the last year as its operating margin fell by 5.3 percentage points
Marqeta is trading at $3.88 per share, or 2.3x forward price-to-sales. Read our free research report to see why you should think twice about including MQ in your portfolio.
Voya Financial (VOYA)
Market Cap: $8.24 billion
Originally spun off from Dutch financial giant ING in 2013 and rebranded with a name suggesting "voyage," Voya Financial (NYSE: VOYA) provides workplace benefits and savings solutions to U.S. employers, helping their employees achieve better financial outcomes through retirement plans and insurance products.
Why Are We Wary of VOYA?
- 5.5% annual revenue growth over the last two years was slower than its financials peers
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.9% annually
- Annual tangible book value per share declines of 13.1% for the past five years show its capital management struggled during this cycle
At $92.29 per share, Voya Financial trades at 9.5x forward P/E. Check out our free in-depth research report to learn more about why VOYA doesn’t pass our bar.
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.
