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.
ASGN (ASGN)
Market Cap: $1.59 billion
Evolving from its roots in IT staffing to become a high-end technology consulting powerhouse, ASGN (NYSE: ASGN) provides specialized IT consulting services and staffing solutions to Fortune 1000 companies and U.S. federal government agencies.
Why Should You Sell ASGN?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5.4% annually over the last two years
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.2%
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
ASGN’s stock price of $38.40 implies a valuation ratio of 7.8x forward P/E. To fully understand why you should be careful with ASGN, check out our full research report (it’s free).
Connection (CNXN)
Market Cap: $1.51 billion
Starting as a small computer products seller in 1982 and evolving into a Fortune 1000 company, Connection (NASDAQ: CNXN) is a technology solutions provider that helps businesses and government agencies design, purchase, implement, and manage their IT infrastructure and systems.
Why Do We Avoid CNXN?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Earnings per share lagged its peers over the last two years as they only grew by 3.3% annually
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3.3% for the last five years
At $60.18 per share, Connection trades at 15.7x forward P/E. Read our free research report to see why you should think twice about including CNXN in your portfolio.
Seadrill (SDRL)
Market Cap: $2.95 billion
Operating in water depths reaching 12,000 feet below the surface, Seadrill (NYSE: SDRL) owns and operates drillships and semi-submersible rigs that drill oil and gas wells in deepwater offshore locations.
Why Is SDRL Risky?
- Sales tumbled by 10.5% annually over the last ten years, showing market trends are working against its favor during this cycle
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 34%
- Cash-burning history makes us doubt the long-term viability of its business model
Seadrill is trading at $47.20 per share, or 188.6x forward P/E. Check out our free in-depth research report to learn more about why SDRL doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
