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. That said, here are three small-cap stocks to pass on and some alternatives you should look into instead.
VF Corp (VFC)
Market cap: $7.89 billion
Owner of The North Face, Vans, and Supreme, VF Corp (NYSE: VFC) is a clothing conglomerate specializing in branded lifestyle apparel, footwear, and accessories.
Why Do We Think VFC Will Underperform?
- Products and services aren’t resonating with the market as its revenue declined by 3.1% annually over the last five years
- Poor free cash flow margin of 5.3% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- ROIC hasn’t moved, making investors question whether its recent investments can increase profitability
VF Corp is trading at $19.83 per share, or 15.8x forward P/E. If you’re considering VFC for your portfolio, see our FREE research report to learn more.
Caesars Entertainment (CZR)
Market cap: $5.92 billion
Formerly Eldorado Resorts, Caesars Entertainment (NASDAQ: CZR) is a global gaming and hospitality company operating numerous casinos, hotels, and resort properties.
Why Do We Avoid CZR?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 6.7% for the last five years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $29.08 per share, Caesars Entertainment trades at 8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including CZR in your portfolio.
Hilltop Holdings (HTH)
Market cap: $2.11 billion
Transformed from a residential communities business to a financial services powerhouse in 2007, Hilltop Holdings (NYSE: HTH) is a Texas-based financial holding company that provides banking, broker-dealer, and mortgage origination services.
Why Should You Sell HTH?
- 1.7% annual net interest income growth over the last five years was slower than its banking peers
- Overall productivity is expected to fall over the next year as Wall Street thinks its potential sales declines will be accompanied by a 30 percentage point degradation in its efficiency ratio
- Sales were less profitable over the last five years as its earnings per share fell by 14.1% annually, worse than its revenue declines
Hilltop Holdings’s stock price of $37.27 implies a valuation ratio of 1x forward P/B. Dive into our free research report to see why there are better opportunities than HTH.
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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.
