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.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Teradata (TDC)
Market Cap: $3.28 billion
Pioneering data warehousing technology in the 1980s before "big data" was a common term, Teradata (NYSE: TDC) provides cloud-based data analytics and AI platforms that help large enterprises integrate, analyze, and leverage their data across multiple environments.
Why Do We Avoid TDC?
- Offerings struggled to generate meaningful interest as its average billings growth of 3.7% over the last year did not impress
- Overall productivity fell over the last year as its plummeting sales were accompanied by a decline in its operating margin
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 20.2 percentage points over the next year
Teradata is trading at $34.97 per share, or 2x forward price-to-sales. Check out our free in-depth research report to learn more about why TDC doesn’t pass our bar.
WEX (WEX)
Market Cap: $5.09 billion
Originally founded in 1983 as Wright Express to serve the fleet card market, WEX (NYSE: WEX) provides payment processing and business solutions across fleet management, employee benefits, and corporate payments sectors.
Why Are We Cautious About WEX?
- Muted 2.1% annual revenue growth over the last two years shows its demand lagged behind its financials peers
- Earnings per share lagged its peers over the last two years as they only grew by 6% annually
At $146.99 per share, WEX trades at 7.4x forward P/E. If you’re considering WEX for your portfolio, see our FREE research report to learn more.
BankUnited (BKU)
Market Cap: $3.44 billion
Born from the ashes of a failed Florida thrift during the 2009 financial crisis, BankUnited (NYSE: BKU) is a regional bank that provides commercial lending, deposit services, and treasury solutions to businesses and consumers primarily in Florida and the New York metropolitan area.
Why Does BKU Fall Short?
- Net interest income trends were unexciting over the last five years as its 5.5% annual growth was below the typical banking firm
- Net interest margin of 2.9% reflects its high servicing and capital costs
- Performance over the past five years shows its incremental sales were less profitable, as its 1.2% annual earnings per share growth trailed its revenue gains
BankUnited’s stock price of $47.27 implies a valuation ratio of 1.1x forward P/B. Read our free research report to see why you should think twice about including BKU in your portfolio.
High-Quality Stocks for All Market Conditions
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum 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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
