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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to pass on and some alternatives you should look into instead.
Victoria's Secret (VSXY)
Market Cap: $7.10 billion
Spun off from L Brands in 2020, Victoria’s Secret (NYSE:VSXY) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.
Why Is VSXY Not Exciting?
- Annual revenue growth of 2.6% over the last three years was below our standards for the consumer retail sector
- Subpar operating margin of 4.8% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Earnings per share fell by 6% annually over the last three years while its revenue grew, partly because it diluted shareholders
Victoria's Secret’s stock price of $89.43 implies a valuation ratio of 17.7x forward P/E. Dive into our free research report to see why there are better opportunities than VSXY.
Arhaus (ARHS)
Market Cap: $1.12 billion
With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ:ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.
Why Do We Think Twice About ARHS?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Smaller revenue base of $1.38 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 25.6% annually
At $7.93 per share, Arhaus trades at 16.2x forward P/E. If you’re considering ARHS for your portfolio, see our FREE research report to learn more.
Diebold Nixdorf (DBD)
Market Cap: $3.14 billion
With roots dating back to 1859 and a presence in over 100 countries, Diebold Nixdorf (NYSE:DBD) provides automated self-service technology, software, and services that help banks and retailers digitize their customer transactions.
Why Are We Bearish on DBD?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Earnings per share have dipped by 10% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Low free cash flow margin of -1% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Diebold Nixdorf is trading at $90.70 per share, or 15.3x forward P/E. Check out our free in-depth research report to learn more about why DBD doesn’t pass our bar.
Stocks We Like More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is 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% between October 2022 and February 2026. AppLovin before it ran 753% between February 2024 and February 2026. Nvidia before it ran 1,178% between January 2023 and February 2026. 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 (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.