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 pass on and some alternatives you should look into instead.
Sprout Social (SPT)
Market Cap: $603.2 million
Born from the recognition that businesses needed a centralized way to handle their growing social media presence, Sprout Social (NASDAQ: SPT) provides a comprehensive software platform that helps businesses manage, analyze, and optimize their presence across various social media networks.
Why Does SPT Worry Us?
- Average ARR growth of 10.1% over the last year has disappointed, suggesting it’s had a hard time winning long-term deals and renewals
- Estimated sales growth of 5.3% for the next 12 months implies demand will slow from its two-year trend
- Historical operating margin losses point to an inefficient cost structure
At $9.96 per share, Sprout Social trades at 1.2x forward price-to-sales. To fully understand why you should be careful with SPT, check out our full research report (it’s free).
Teladoc (TDOC)
Market Cap: $1.11 billion
Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE: TDOC) is a telemedicine platform that facilitates remote doctor’s visits.
Why Does TDOC Fall Short?
- Sales stagnated over the last three years and signal the need for new growth strategies
- Customer spending has dipped by 9.2% on average as it focused on growing its users
- Forecasted revenue decline of 5.1% for the upcoming 12 months implies demand will fall off a cliff
Teladoc’s stock price of $6.16 implies a valuation ratio of 8.4x forward EV/EBITDA. If you’re considering TDOC for your portfolio, see our FREE research report to learn more.
Rogers (ROG)
Market Cap: $2.49 billion
With roots dating back to 1832, making it one of America's oldest continuously operating companies, Rogers (NYSE: ROG) designs and manufactures specialized engineered materials and components used in electric vehicles, telecommunications, renewable energy, and other high-performance applications.
Why Are We Out on ROG?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Earnings per share have dipped by 12.3% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up
Rogers is trading at $139.45 per share, or 32.5x forward P/E. Dive into our free research report to see why there are better opportunities than ROG.
Stocks We Like More
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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.
