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.
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.
Petco (WOOF)
Market Cap: $667.4 million
Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ:WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.
Why Do We Steer Clear of WOOF?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Negative returns on capital show management lost money while trying to expand the business
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Petco’s stock price of $2.32 implies a valuation ratio of 9.8x forward P/E. Check out our free in-depth research report to learn more about why WOOF doesn’t pass our bar.
Global Industrial (GIC)
Market Cap: $1.68 billion
Formerly known as Systemax, Global Industrial (NYSE:GIC) distributes industrial and commercial products to businesses and institutions.
Why Are We Out on GIC?
- Annual revenue growth of 3.3% over the last two years was below our standards for the industrials sector
- Flat earnings per share over the last two years lagged its peers
- Diminishing returns on capital suggest its earlier profit pools are drying up
Global Industrial is trading at $44.09 per share, or 22x forward P/E. Read our free research report to see why you should think twice about including GIC in your portfolio.
Omnicell (OMCL)
Market Cap: $1.66 billion
Driven by the vision of an "Autonomous Pharmacy" with zero medication errors, Omnicell (NASDAQ:OMCL) provides medication management automation and adherence tools that help healthcare systems and pharmacies reduce errors and improve efficiency.
Why Do We Pass on OMCL?
- Sales trends were unexciting over the last five years as its 4.8% annual growth was below the typical healthcare company
- Earnings per share have contracted by 6.2% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $36.30 per share, Omnicell trades at 20.4x forward P/E. To fully understand why you should be careful with OMCL, check out our full research report (it’s free).
Stocks We Like More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth 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 Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.