Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Impinj (PI)
Market Cap: $4.52 billion
Founded by Caltech professor Carver Mead and one of his students Chris Diorio, Impinj (NASDAQ: PI) is a maker of radio-frequency identification (RFID) hardware and software.
Why Is PI Not Exciting?
- Anticipated sales growth of 9.3% for the next year implies demand will be shaky
- Historical operating margin losses point to an inefficient cost structure
- Negative returns on capital show that some of its growth strategies have backfired
At $147.78 per share, Impinj trades at 72.5x forward P/E. To fully understand why you should be careful with PI, check out our full research report (it’s free).
Gap (GAP)
Market Cap: $7.82 billion
Operating under the Gap, Old Navy, Banana Republic, and Athleta brands, Gap (NYSE: GAP) is an apparel and accessories retailer selling casual clothing to men, women, and children.
Why Does GAP Give Us Pause?
- Sales were flat over the last three years, indicating it’s failed to expand its business
- Conservative approach to adding new stores shows management is focused on improving existing location performance
- Underwhelming 7.6% return on capital reflects management’s difficulties in finding profitable growth opportunities
Gap is trading at $21.58 per share, or 9.4x forward P/E. Check out our free in-depth research report to learn more about why GAP doesn’t pass our bar.
CoreCivic (CXW)
Market Cap: $1.94 billion
Originally founded in 1983 as the first private prison company in the United States, CoreCivic (NYSE: CXW) operates correctional facilities, detention centers, and residential reentry programs for government agencies across the United States.
Why Are We Hesitant About CXW?
- Muted 4.6% annual revenue growth over the last five years shows its demand lagged behind its business services peers
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 3.2 percentage points
- Free cash flow margin shrank by 6.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
CoreCivic’s stock price of $19.66 implies a valuation ratio of 0.8x forward price-to-sales. If you’re considering CXW for your portfolio, see our FREE research report to learn more.
Stocks We Like More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it's flagging for this month - FREE. Get Our Top 5 Growth Stocks for Free HERE.
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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
