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.
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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
AMC Networks (AMCX)
Market Cap: $360.4 million
Originally the joint-venture of four cable television companies, AMC Networks (NASDAQ: AMCX) is a broadcaster producing a diverse range of television shows and movies.
Why Should You Dump AMCX?
- Annual revenue declines of 3.9% over the last five years indicate problems with its market positioning
- Free cash flow margin is anticipated to expand by 1.3 percentage points over the next year, providing additional flexibility for investments and share buybacks/dividends
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $8.29 per share, AMC Networks trades at 4x forward P/E. If you’re considering AMCX for your portfolio, see our FREE research report to learn more.
Parsons (PSN)
Market Cap: $7.72 billion
Delivering aerospace technology during the Cold War-era, Parsons (NYSE: PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.
Why Is PSN Not Exciting?
- Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 2.2% for the past two years was weak
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
- ROIC of 6.6% reflects management’s challenges in identifying attractive investment opportunities
Parsons’s stock price of $72.50 implies a valuation ratio of 22.1x forward P/E. Check out our free in-depth research report to learn more about why PSN doesn’t pass our bar.
Merit Medical Systems (MMSI)
Market Cap: $4.88 billion
Founded in 1987 and now offering over 1,700 patented products across global markets, Merit Medical Systems (NASDAQ: MMSI) manufactures and markets specialized medical devices used in minimally invasive procedures for cardiology, radiology, oncology, critical care, and endoscopy.
Why Do We Think Twice About MMSI?
- Smaller revenue base of $1.48 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Underwhelming 4.9% return on capital reflects management’s difficulties in finding profitable growth opportunities
Merit Medical Systems is trading at $82.32 per share, or 20.4x forward P/E. Read our free research report to see why you should think twice about including MMSI in your portfolio.
Stocks We Like More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 6 Stocks for this week. 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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
