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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
ArcBest (ARCB)
Market Cap: $1.62 billion
Historically owning furniture, banking, and other subsidiaries, ArcBest (NASDAQ:ARCB) offers full-truckload, less-than-truckload, and intermodal deliveries of freight.
Why Should You Dump ARCB?
- Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Earnings per share have contracted by 32.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Eroding returns on capital suggest its historical profit centers are aging
ArcBest is trading at $70.90 per share, or 11.1x forward P/E. Dive into our free research report to see why there are better opportunities than ARCB.
GoodRx (GDRX)
Market Cap: $1.74 billion
Started in 2011 to tackle the problem of high prescription drug costs in America, GoodRx (NASDAQ:GDRX) operates a digital platform that helps consumers find lower prices on prescription medications through price comparison tools and discount codes.
Why Do We Steer Clear of GDRX?
- Annual revenue growth of 3.3% over the last two years was below our standards for the healthcare sector
- Modest revenue base of $797.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Negative returns on capital show management lost money while trying to expand the business
GoodRx’s stock price of $4.60 implies a valuation ratio of 10.7x forward P/E. If you’re considering GDRX for your portfolio, see our FREE research report to learn more.
Texas Capital Bancshares (TCBI)
Market Cap: $3.58 billion
With primary banking offices in five major Texas metropolitan areas and a growing national presence, Texas Capital Bancshares (NASDAQ:TCBI) is a Texas-based financial services firm that provides commercial banking, wealth management, and investment banking services to businesses and individuals.
Why Is TCBI Not Exciting?
- Annual net interest income growth of 3.1% over the last four years was below our standards for the bank sector
- Inferior net interest margin of 3.1% means it must compensate for lower profitability through increased loan originations
- Sales were less profitable over the last five years as its earnings per share fell by 21.5% annually, worse than its revenue declines
At $77.86 per share, Texas Capital Bancshares trades at 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than TCBI.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free.