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.
eXp World (EXPI)
Market Cap: $995.4 million
Founded in 2009, eXp World (NASDAQ:EXPI) is a real estate company known for its virtual, cloud-based approach to real estate brokerage.
Why Should You Dump EXPI?
- Annual revenue growth of 5.7% over the last two years was below our standards for the consumer discretionary sector
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3.1% for the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
eXp World’s stock price of $6.27 implies a valuation ratio of 23.7x forward P/E. Dive into our free research report to see why there are better opportunities than EXPI.
Mister Car Wash (MCW)
Market Cap: $2.30 billion
Formerly known as Hotshine Holdings, Mister Car Wash (NYSE:MCW) offers car washes across the United States through its conveyorized service.
Why Is MCW Risky?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Mister Car Wash is trading at $6.94 per share, or 14.7x forward P/E. Read our free research report to see why you should think twice about including MCW in your portfolio.
Hudson Technologies (HDSN)
Market Cap: $263.7 million
Founded in 1991, Hudson Technologies (NASDAQ:HDSN) specializes in refrigerant services and solutions, providing refrigerant sales, reclamation, and recycling.
Why Are We Hesitant About HDSN?
- Sales tumbled by 7.6% annually over the last two years, showing market trends are working against its favor during this cycle
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 39.1% annually, worse than its revenue
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $6.21 per share, Hudson Technologies trades at 15.1x forward P/E. Check out our free in-depth research report to learn more about why HDSN doesn’t pass our bar.
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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.