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.
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 avoid and some other investments you should consider instead.
Angi (ANGI)
Market Cap: $222.1 million
Created by IAC’s mergers of Angie’s List and HomeAdvisor, ANGI (NASDAQ: ANGI) operates the largest online marketplace for home services in the US.
Why Are We Cautious About ANGI?
- Intense competition is diverting traffic from its platform as its service requests fell by 19.2% annually
- Forecasted revenue decline of 3.6% for the upcoming 12 months implies demand will fall even further
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
Angi’s stock price of $5.91 implies a valuation ratio of 4.4x forward EV/EBITDA. Read our free research report to see why you should think twice about including ANGI in your portfolio.
Donnelley Financial Solutions (DFIN)
Market Cap: $930.3 million
Born from the need to navigate increasingly complex financial regulations in the digital age, Donnelley Financial Solutions (NYSE: DFIN) provides software and technology-enabled services that help companies comply with SEC regulations and manage financial transactions and reporting requirements.
Why Are We Wary of DFIN?
- Sales tumbled by 3.4% annually over the last five years, showing market trends are working against it during this cycle
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 8.4% annually
Donnelley Financial Solutions is trading at $44.12 per share, or 1.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DFIN.
Lake City Bank (LKFN)
Market Cap: $1.52 billion
Dating back to 1872 and deeply rooted in Indiana's communities, Lakeland Financial Corporation (NASDAQ: LKFN) operates Lake City Bank, providing commercial and consumer banking services throughout Northern and Central Indiana.
Why Does LKFN Give Us Pause?
- Sales trends were unexciting over the last five years as its 5.1% annual growth was below the typical banking company
- Net interest income trends were unexciting over the last five years as its 6% annual growth was below the typical banking firm
- Annual earnings per share growth of 3.9% underperformed its revenue over the last five years, showing its incremental sales were less profitable
At $63.12 per share, Lake City Bank trades at 1.9x forward P/B. If you’re considering LKFN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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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.
