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 pass on and some alternatives you should look into instead.
G-III (GIII)
Market cap: $1.37 billion
Founded as a small leather goods business, G-III (NASDAQ: GIII) is a fashion and apparel conglomerate with a diverse portfolio of brands.
Why Do We Think GIII Will Underperform?
- Lackluster 3.9% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 4.2% annually
- Low free cash flow margin of 10.5% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
G-III’s stock price of $32.03 implies a valuation ratio of 0.5x forward price-to-sales. If you’re considering GIII for your portfolio, see our FREE research report to learn more.
Henry Schein (HSIC)
Market cap: $9.43 billion
With a vast inventory of over 300,000 products stocked in distribution centers spanning more than 5.3 million square feet worldwide, Henry Schein (NASDAQ: HSIC) is a global distributor of healthcare products and services primarily to dental practices, medical offices, and other healthcare facilities.
Why Does HSIC Fall Short?
- 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
- Earnings per share lagged its peers over the last five years as they only grew by 3.6% annually
- Eroding returns on capital suggest its historical profit centers are aging
Henry Schein is trading at $85.32 per share, or 15.2x forward P/E. Check out our free in-depth research report to learn more about why HSIC doesn’t pass our bar.
Commerce Bancshares (CBSH)
Market cap: $7.84 billion
Founded in 1865 during the post-Civil War economic boom, Commerce Bancshares (NASDAQGS:CBSH) is a Midwest-focused bank holding company that provides retail, commercial, and wealth management services to individuals and businesses.
Why Does CBSH Worry Us?
- Annual net interest income growth of 7.6% over the last five years was below our standards for the banking sector
- Performance over the past five years shows its incremental sales were less profitable, as its 4.6% annual earnings per share growth trailed its revenue gains
- Estimated tangible book value per share growth of 5.9% for the next 12 months implies profitability will slow from its two-year trend
At $55.23 per share, Commerce Bancshares trades at 1.9x forward P/B. Dive into our free research report to see why there are better opportunities than CBSH.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
