Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
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.
Etsy (ETSY)
Market Cap: $5.91 billion
Founded by a struggling amateur furniture maker Robert Kalin and his two friends, Etsy (NASDAQ: ETSY) is one of the world’s largest online marketplaces, focusing on handmade or vintage items.
Why Does ETSY Give Us Pause?
- Active Buyers have stagnated over the last two years, indicating its platform may be struggling to differentiate itself from competitors
- Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
- Earnings per share were flat over the last three years while its revenue grew, showing its incremental sales were less profitable
Etsy’s stock price of $59.09 implies a valuation ratio of 9.9x forward EV/EBITDA. Read our free research report to see why you should think twice about including ETSY in your portfolio.
1-800-FLOWERS (FLWS)
Market Cap: $334.6 million
Founded in 1976, 1-800-FLOWERS (NASDAQ: FLWS) is an online retailer of flowers, gifts, and gourmet foods, serving customers globally.
Why Do We Avoid FLWS?
- Annual sales declines of 8.6% for the past two years show its products and services struggled to connect with the market
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $5.29 per share, 1-800-FLOWERS trades at 0.2x forward price-to-sales. Check out our free in-depth research report to learn more about why FLWS doesn’t pass our bar.
Installed Building Products (IBP)
Market Cap: $7.39 billion
Founded in 1977, Installed Building Products (NYSE: IBP) is a company specializing in the installation of insulation, waterproofing, and other complementary building products for residential and commercial construction.
Why Is IBP Not Exciting?
- Muted 3.5% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Estimated sales decline of 3.1% for the next 12 months implies a challenging demand environment
- Earnings per share lagged its peers over the last two years as they only grew by 5.3% annually
Installed Building Products is trading at $272.21 per share, or 27.3x forward P/E. If you’re considering IBP for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 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. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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