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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
agilon health (AGL)
Market Cap: $468.3 million
Transforming how doctors care for seniors by shifting financial incentives from volume to outcomes, agilon health (NYSE: AGL) provides a platform that helps primary care physicians transition to value-based care models for Medicare patients through long-term partnerships and global capitation arrangements.
Why Are We Cautious About AGL?
- Expenses have increased as a percentage of revenue over the last two years as its adjusted operating margin fell by 3.9 percentage points
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Push for growth has led to negative returns on capital, signaling value destruction
At $1.14 per share, agilon health trades at 0.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than AGL.
Fortrea (FTRE)
Market Cap: $908.9 million
Spun off from Labcorp in 2023 to focus exclusively on clinical research services, Fortrea (NASDAQ: FTRE) is a contract research organization that helps pharmaceutical, biotech, and medical device companies develop and bring their products to market through clinical trials and support services.
Why Are We Out on FTRE?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.6% annually over the last two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Fortrea’s stock price of $9.83 implies a valuation ratio of 16.6x forward P/E. To fully understand why you should be careful with FTRE, check out our full research report (it’s free).
AXIS Capital (AXS)
Market Cap: $7.59 billion
Founded in the aftermath of the 9/11 attacks when insurance capacity was scarce, AXIS Capital Holdings Limited (NYSE: AXS) is a global specialty insurer and reinsurer that provides coverage for complex risks across property, liability, professional lines, cyber, and other specialty markets.
Why Are We Wary of AXS?
- Annual revenue growth of 4.9% over the last five years was below our standards for the insurance sector
- Net premiums earned expanded by 3.4% annually over the last two years, falling below our expectations for the insurance sector
- Underwhelming 9.7% return on equity reflects management’s difficulties in finding profitable growth opportunities
AXIS Capital is trading at $97.09 per share, or 1.3x forward P/B. If you’re considering AXS for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound 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 183% over the last five years (as of March 31st 2025).
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. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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