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.
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.
Byrna (BYRN)
Market Cap: $148.6 million
Providing civilians with tools to disable, disarm, and deter would-be assailants, Byrna (NASDAQ:BYRN) is a provider of non-lethal weapons.
Why Are We Cautious About BYRN?
- Cash-burning history makes us doubt the long-term viability of its business model
- Negative returns on capital show that some of its growth strategies have backfired
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Byrna’s stock price of $6.49 implies a valuation ratio of 25.7x forward EV-to-EBITDA. If you’re considering BYRN for your portfolio, see our FREE research report to learn more.
RXO (RXO)
Market Cap: $4.27 billion
With access to millions of trucks, RXO (NYSE:RXO) offers full-truckload, less-than-truckload, and last-mile deliveries.
Why Should You Sell RXO?
- Declining unit sales over the past two years imply it may need to invest in improvements to get back on track
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $25.93 per share, RXO trades at 183.7x forward P/E. Read our free research report to see why you should think twice about including RXO in your portfolio.
S&T Bancorp (STBA)
Market Cap: $1.62 billion
Tracing its roots back to 1902 in western Pennsylvania's industrial heartland, S&T Bancorp (NASDAQ:STBA) is a Pennsylvania-based bank holding company that provides retail and commercial banking services, cash management, trust services, and investment advisory solutions.
Why Does STBA Fall Short?
- Muted 4.9% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Anticipated net interest income growth of 3.8% for the next year implies demand will be shaky
- Earnings per share were flat over the last two years and fell short of the peer group average
S&T Bancorp is trading at $44.90 per share, or 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than STBA.
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.