Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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.
Redfin (RDFN)
Market Cap: $1.26 billion
Founded by a former medical school student, electrical engineer, and Amazon data engineer, Redfin (NASDAQ:RDFN) is a real estate company offering brokerage services through an online platform.
Why Should You Dump RDFN?
- Performance surrounding its partner transactions has lagged its peers
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 10.6% annually while its revenue grew
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
Redfin’s stock price of $9.90 implies a valuation ratio of 75.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why RDFN doesn’t pass our bar.
Sabre (SABR)
Market Cap: $1.04 billion
Originally a division of American Airlines, Sabre (NASDAQ:SABR) is a technology provider for the global travel and tourism industry.
Why Are We Out on SABR?
- Number of central reservation system transactions has disappointed over the past two years, indicating weak demand for its offerings
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Sabre is trading at $2.65 per share, or 14.5x forward P/E. If you’re considering SABR for your portfolio, see our FREE research report to learn more.
Owens & Minor (OMI)
Market Cap: $510.3 million
With roots dating back to 1882 and operations spanning approximately 80 countries, Owens & Minor (NYSE:OMI) is a healthcare solutions company that manufactures medical supplies, distributes products to healthcare providers, and delivers medical equipment directly to patients.
Why Is OMI Not Exciting?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 3.2% over the last two years was below our standards for the healthcare sector
- ROIC of 3.8% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $6.66 per share, Owens & Minor trades at 3.7x forward P/E. To fully understand why you should be careful with OMI, check out our full research report (it’s free).
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Strong Momentum Stocks for this week. 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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.