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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Steven Madden (SHOO)
Market Cap: $2.29 billion
As seen in the infamous Wolf of Wall Street movie, Steven Madden (NASDAQ: SHOO) is a fashion brand famous for its trendy and innovative footwear, appealing to a young and style-conscious audience.
Why Do We Steer Clear of SHOO?
- Sales trends were unexciting over the last five years as its 16.1% annual growth was below the typical consumer discretionary company
- Poor free cash flow margin of 6.1% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Steven Madden’s stock price of $31.37 implies a valuation ratio of 15.7x forward P/E. To fully understand why you should be careful with SHOO, check out our full research report (it’s free).
ChargePoint (CHPT)
Market Cap: $126.3 million
The most prominent EV charging company during the COVID bull market, ChargePoint (NYSE: CHPT) is a provider of electric vehicle charging technology solutions in North America and Europe.
Why Does CHPT Fall Short?
- Sales tumbled by 9.9% annually over the last two years, showing market trends are working against its favor during this cycle
- Cash-burning history makes us doubt the long-term viability of its business model
- EBITDA losses may force it to accept punitive lending terms or high-cost debt
At $5.32 per share, ChargePoint trades at 0.3x forward price-to-sales. If you’re considering CHPT for your portfolio, see our FREE research report to learn more.
Ingredion (INGR)
Market Cap: $7.07 billion
Known for its ability to turn ordinary corn into thousands of different food ingredients, Ingredion (NYSE: INGR) transforms grains, fruits, vegetables and other plant-based materials into specialty starches, sweeteners and other ingredients for food, beverage and industrial markets.
Why Is INGR Not Exciting?
- Products have few die-hard fans as sales have declined by 3.1% annually over the last three years
- Projected sales growth of 2% for the next 12 months suggests sluggish demand
- Free cash flow margin shrank by 8.3 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
Ingredion is trading at $114.33 per share, or 9.8x forward P/E. Read our free research report to see why you should think twice about including INGR in your portfolio.
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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
