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.
Orion (ORN)
Market Cap: $321.2 million
Established in 1994, Orion (NYSE: ORN) provides construction services for marine infrastructure and industrial projects.
Why Do We Avoid ORN?
- Sales trends were unexciting over the last five years as its 2.4% annual growth was below the typical industrials company
- Earnings per share fell by 10.1% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Orion’s stock price of $8.12 implies a valuation ratio of 50.1x forward P/E. Check out our free in-depth research report to learn more about why ORN doesn’t pass our bar.
FuelCell Energy (FCEL)
Market Cap: $103.9 million
Founded in 1969, FuelCell Energy (NASDAQ: FCEL) is a leading manufacturer and developer of carbonate fuel cell technology for stationary power generation.
Why Does FCEL Worry Us?
- Average backlog growth of 1% over the past two years was mediocre and suggests fewer customers signed long-term contracts
- 73.3 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
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
FuelCell Energy is trading at $4.55 per share, or 0.6x forward price-to-sales. If you’re considering FCEL for your portfolio, see our FREE research report to learn more.
ABM (ABM)
Market Cap: $3.20 billion
With roots dating back to 1909 as a window washing company, ABM Industries (NYSE: ABM) provides integrated facility management, infrastructure, and mobility solutions across various sectors including commercial, manufacturing, education, and aviation.
Why Do We Think ABM Will Underperform?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Performance over the past two years shows its incremental sales were less profitable, as its 1.3% annual earnings per share growth trailed its revenue gains
- Free cash flow margin dropped by 7.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $51.37 per share, ABM trades at 13.4x forward P/E. To fully understand why you should be careful with ABM, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
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 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.
