Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
MSA Safety (MSA)
Market Cap: $6.33 billion
Founded in 1914 as Mine Safety Appliances to protect coal miners from dangerous gases, MSA Safety (NYSE: MSA) designs and manufactures advanced safety products that protect workers and facilities across industries including fire service, energy, construction, and manufacturing.
Why Do We Think Twice About MSA?
- Modest revenue base of $1.82 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Estimated sales growth of 3.5% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin has stayed in place over the last five years
MSA Safety is trading at $161 per share, or 19.4x forward P/E. To fully understand why you should be careful with MSA, check out our full research report (it’s free).
Global Industrial (GIC)
Market Cap: $1.03 billion
Formerly known as Systemax, Global Industrial (NYSE: GIC) distributes industrial and commercial products to businesses and institutions.
Why Do We Think GIC Will Underperform?
- Annual revenue growth of 5.7% over the last four years was below our standards for the industrials sector
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 6.8% annually
- Eroding returns on capital suggest its historical profit centers are aging
Global Industrial’s stock price of $26.96 implies a valuation ratio of 16.9x forward P/E. Read our free research report to see why you should think twice about including GIC in your portfolio.
RadNet (RDNT)
Market Cap: $4.54 billion
With over 350 imaging facilities across seven states and a growing artificial intelligence division, RadNet (NASDAQ: RDNT) operates a network of outpatient diagnostic imaging centers across the United States, offering services like MRI, CT scans, PET scans, mammography, and X-rays.
Why Are We Cautious About RDNT?
- Smaller revenue base of $1.87 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Expenses have increased as a percentage of revenue over the last two years as its adjusted operating margin fell by 1.3 percentage points
- 3.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $61.95 per share, RadNet trades at 114.4x forward P/E. Check out our free in-depth research report to learn more about why RDNT doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.
