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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Qorvo (QRVO)
Market Cap: $7.39 billion
Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.
Why Do We Think QRVO Will Underperform?
- Sales trends were unexciting over the last five years as its 2.8% annual growth was below the typical semiconductor company
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 20 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 14.7 percentage points
Qorvo is trading at $79.18 per share, or 14.3x forward P/E. If you’re considering QRVO for your portfolio, see our FREE research report to learn more.
Perdoceo Education (PRDO)
Market Cap: $2.09 billion
Formerly known as Career Education Corporation, Perdoceo Education (NASDAQ: PRDO) is an educational services company that specializes in postsecondary education.
Why Are We Hesitant About PRDO?
- 1.3% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $31.17 per share, Perdoceo Education trades at 13.1x forward EV-to-EBITDA. To fully understand why you should be careful with PRDO, check out our full research report (it’s free).
Simpson (SSD)
Market Cap: $6.51 billion
Aiming to build safer and stronger buildings, Simpson (NYSE: SSD) designs and manufactures structural connectors, anchors, and other construction products.
Why Are We Wary of SSD?
- 1.9% annual revenue growth over the last two years was slower than its industrials peers
- 6.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Waning returns on capital imply its previous profit engines are losing steam
Simpson’s stock price of $155.69 implies a valuation ratio of 18.8x forward P/E. Dive into our free research report to see why there are better opportunities than SSD.
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 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-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
