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.
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 pass on and some alternatives you should look into instead.
Gray Television (GTN)
Market Cap: $471.4 million
Specializing in local media coverage, Gray Television (NYSE:GTN) is a broadcast company supplying digital media to various markets in the United States.
Why Is GTN Risky?
- 4.8% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Returns on capital haven’t budged, indicating management couldn’t drive additional value creation
- 8× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Gray Television is trading at $4.89 per share, or 6.1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including GTN in your portfolio.
Ingredion (INGR)
Market Cap: $5.94 billion
Known for its ability to turn ordinary corn into thousands of different food ingredients, Ingredion (NYSE:INGR) transforms grains, fruits, vegetables and other plant-based materials into specialty starches, sweeteners and other ingredients for food, beverage and industrial markets.
Why Does INGR Fall Short?
- Annual sales declines of 4.2% for the past three years show its products struggled to connect with the market
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Free cash flow margin shrank by 6.1 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
Ingredion’s stock price of $95.53 implies a valuation ratio of 8.8x forward P/E. Dive into our free research report to see why there are better opportunities than INGR.
Kosmos Energy (KOS)
Market Cap: $1.54 billion
Operating in some of the world's deepest waters with projects located up to 120 kilometers offshore, Kosmos Energy (NYSE:KOS) explores for, develops, and produces oil and natural gas from deepwater offshore fields.
Why Are We Wary of KOS?
- 8.4% 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 10.5 percentage points
- Cash burn makes us question whether it can achieve sustainable long-term growth
At $2.59 per share, Kosmos Energy trades at 5.5x forward P/E. Check out our free in-depth research report to learn more about why KOS 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 (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.