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.
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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Bath and Body Works (BBWI)
Market Cap: $4.51 billion
Spun off from L Brands in 2020, Bath & Body Works (NYSE: BBWI) is a personal care and home fragrance retailer where consumers can find specialty shower gels, scented candles for the home, and lotions.
Why Do We Think Twice About BBWI?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Forecasted revenue decline of 5.2% for the upcoming 12 months implies demand will fall even further
- Earnings per share have dipped by 5.3% annually over the past three years, which is concerning because stock prices follow EPS over the long term
At $21.94 per share, Bath and Body Works trades at 7.7x forward P/E. If you’re considering BBWI for your portfolio, see our FREE research report to learn more.
Fortune Brands (FBIN)
Market Cap: $6.41 billion
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE: FBIN) makes plumbing, security, and outdoor living products.
Why Do We Steer Clear of FBIN?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 10.4 percentage points
- Earnings per share fell by 5.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
Fortune Brands’s stock price of $53.32 implies a valuation ratio of 12.7x forward P/E. Dive into our free research report to see why there are better opportunities than FBIN.
Bio-Techne (TECH)
Market Cap: $10.17 billion
With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ: TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.
Why Are We Out on TECH?
- 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
- Modest revenue base of $1.22 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Free cash flow margin shrank by 11.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Bio-Techne is trading at $65.28 per share, or 31.2x forward P/E. To fully understand why you should be careful with TECH, check out our full research report (it’s free for active Edge members).
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check 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 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.
