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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Sonos (SONO)
Market Cap: $1.88 billion
A pioneer in connected home audio systems, Sonos (NASDAQ: SONO) offers a range of premium wireless speakers and sound systems.
Why Do We Steer Clear of SONO?
- Sales tumbled by 8% annually over the last two years, showing consumer trends are working against its favor
- Persistent operating margin losses suggest the business manages its expenses poorly
- Negative returns on capital show that some of its growth strategies have backfired
Sonos is trading at $15.48 per share, or 25.5x forward P/E. To fully understand why you should be careful with SONO, check out our full research report (it’s free).
Exponent (EXPO)
Market Cap: $3.51 billion
With a team of over 800 consultants holding advanced degrees in 90+ technical disciplines, Exponent (NASDAQ: EXPO) is a science and engineering consulting firm that investigates complex problems and provides expert analysis for clients across various industries.
Why Are We Cautious About EXPO?
- Muted 3.3% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Performance over the past two 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
Exponent’s stock price of $69.47 implies a valuation ratio of 33.3x forward P/E. Read our free research report to see why you should think twice about including EXPO in your portfolio.
Artisan Partners (APAM)
Market Cap: $3.18 billion
Founded in 1994 with a focus on autonomous investment teams and a "high-value-added" approach, Artisan Partners (NYSE: APAM) is an investment management firm that offers actively managed equity and fixed income strategies to institutional and individual investors.
Why Is APAM Not Exciting?
- Annual revenue growth of 6.8% over the last five years was below our standards for the financials sector
- Incremental sales over the last five years were less profitable as its 5.2% annual earnings per share growth lagged its revenue gains
At $45.13 per share, Artisan Partners trades at 2.4x forward price-to-sales. If you’re considering APAM for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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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. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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