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.
Wix (WIX)
Market Cap: $4.13 billion
Powering over 263 million registered users worldwide with its AI-driven tools, Wix (NASDAQ: WIX) provides a cloud-based platform that helps individuals and businesses create and manage professional websites without requiring coding skills.
Why Does WIX Worry Us?
- Average billings growth of 13.7% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Operating margin expanded by 1.9 percentage points over the last year as it scaled and became more efficient
- Projected 3.5 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
Wix’s stock price of $75.90 implies a valuation ratio of 1.9x forward price-to-sales. Read our free research report to see why you should think twice about including WIX in your portfolio.
Malibu Boats (MBUU)
Market Cap: $581.1 million
Founded in California in 1982, Malibu Boats (NASDAQ: MBUU) is a manufacturer of high-performance sports boats and luxury watercrafts.
Why Should You Dump MBUU?
- Annual revenue growth of 3.9% over the last five years was below our standards for the consumer discretionary sector
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Malibu Boats is trading at $31.25 per share, or 20x forward P/E. To fully understand why you should be careful with MBUU, check out our full research report (it’s free).
DXC (DXC)
Market Cap: $2.58 billion
Born from the 2017 merger of Computer Sciences Corporation and HP Enterprise's services business, DXC Technology (NYSE: DXC) is a global IT services company that helps businesses transform their technology infrastructure, applications, and operations.
Why Do We Think DXC Will Underperform?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Projected sales decline of 1.9% over the next 12 months indicates demand will continue deteriorating
- Underwhelming 1% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
At $15.10 per share, DXC trades at 4.5x forward P/E. If you’re considering DXC for your portfolio, see our FREE research report to learn more.
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 Growth Stocks for this month. 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 Kadant (+351% five-year return). Find your next big winner with StockStory today.
