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 avoid and some other investments you should consider instead.
Worthington (WOR)
Market Cap: $2.78 billion
Founded by a steel salesman, Worthington (NYSE:WOR) specializes in steel processing, pressure cylinders, and engineered cabs for commercial markets.
Why Do We Think WOR Will Underperform?
- Annual sales declines of 15.3% for the past five years show its products and services struggled to connect with the market during this cycle
- Earnings per share have contracted by 9.1% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Worthington is trading at $56.75 per share, or 15.4x forward P/E. Dive into our free research report to see why there are better opportunities than WOR.
Bruker (BRKR)
Market Cap: $8.54 billion
With roots dating back to the pioneering days of nuclear magnetic resonance technology, Bruker (NASDAQ:BRKR) develops and manufactures high-performance scientific instruments that enable researchers and industrial analysts to explore materials at microscopic, molecular, and cellular levels.
Why Are We Wary of BRKR?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat
- Waning returns on capital imply its previous profit engines are losing steam
Bruker’s stock price of $55.91 implies a valuation ratio of 25.6x forward P/E. If you’re considering BRKR for your portfolio, see our FREE research report to learn more.
Connection (CNXN)
Market Cap: $2.02 billion
Starting as a small computer products seller in 1982 and evolving into a Fortune 1000 company, Connection (NASDAQ:CNXN) is a technology solutions provider that helps businesses and government agencies design, purchase, implement, and manage their IT infrastructure and systems.
Why Are We Cautious About CNXN?
- Sales trends were unexciting over the last five years as its 2.3% annual growth was below the typical business services company
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 8.4% annually
- Low free cash flow margin of 2.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $80.07 per share, Connection trades at 18.4x forward P/E. Read our free research report to see why you should think twice about including CNXN in your portfolio.
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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.