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.
Fiverr (FVRR)
Market Cap: $737.9 million
Based in Tel Aviv, Fiverr (NYSE:FVRR) operates a fixed price global freelance marketplace for digital services.
Why Are We Cautious About FVRR?
- Value proposition isn’t resonating strongly as its active buyers averaged 9.4% drops over the last two years
- Estimated sales growth of 5.4% for the next 12 months implies demand will slow from its three-year trend
- Expensive marketing campaigns hurt its profitability and make us wonder what would happen if it let up on the gas
At $20.63 per share, Fiverr trades at 6.9x forward EV/EBITDA. Check out our free in-depth research report to learn more about why FVRR doesn’t pass our bar.
Urban Outfitters (URBN)
Market Cap: $5.58 billion
Founded as a purveyor of vintage items, Urban Outfitters (NASDAQ:URBN) now largely sells new apparel and accessories to teens and young adults seeking on-trend fashion.
Why Are We Wary of URBN?
- Sales trends were unexciting over the last three years as its 7.5% annual growth was below the typical consumer retail company
- Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 34.9%
- Low returns on capital reflect management’s struggle to allocate funds effectively
Urban Outfitters’s stock price of $66.88 implies a valuation ratio of 11.7x forward P/E. Dive into our free research report to see why there are better opportunities than URBN.
Artisan Partners (APAM)
Market Cap: $2.9 billion
Founded in 1994 with a focus on autonomous investment teams and a "high-value-added" approach, Artisan Partners (NYSE:APAM) is an investment management firm that offers actively managed equity and fixed income strategies to institutional and individual investors.
Why Do We Think Twice About APAM?
- Muted 6.5% annual revenue growth over the last five years shows its demand lagged behind its financials peers
- Incremental sales over the last five years were less profitable as its 4.3% annual earnings per share growth lagged its revenue gains
Artisan Partners is trading at $41.35 per share, or 10.1x forward P/E. To fully understand why you should be careful with APAM, check out our full research report (it’s free for active Edge members).
Stocks We Like More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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