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.
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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Edgewell Personal Care (EPC)
Market Cap: $1.02 billion
Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care (NYSE:EPC) sells personal care products in the skin and sun care, shave, and feminine care categories.
Why Should You Sell EPC?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Sales over the last three years were less profitable as its earnings per share fell by 2.6% annually while its revenue was flat
- Free cash flow margin dropped by 4.9 percentage points over the last year, implying the company became more capital intensive as competition picked up
Edgewell Personal Care’s stock price of $22.37 implies a valuation ratio of 6.9x forward P/E. Read our free research report to see why you should think twice about including EPC in your portfolio.
AerSale (ASLE)
Market Cap: $402.5 million
Providing a one-stop shop that integrates multiple services and product offerings, AerSale (NASDAQ:ASLE) delivers full-service support to mid-life commercial aircraft.
Why Do We Think ASLE Will Underperform?
- Sales trends were unexciting over the last five years as its 3.7% annual growth was below the typical industrials company
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $8.56 per share, AerSale trades at 25.9x forward P/E. If you’re considering ASLE for your portfolio, see our FREE research report to learn more.
DXC (DXC)
Market Cap: $2.3 billion
Born from the 2017 merger of Computer Sciences Corporation and HP Enterprise's services business, DXC Technology (NYSE:DXC) is a global IT services company that helps businesses transform their technology infrastructure, applications, and operations.
Why Do We Steer Clear of DXC?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- ROIC of 1.2% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging
DXC is trading at $13.02 per share, or 4.2x forward P/E. To fully understand why you should be careful with DXC, check out our full research report (it’s free).
Stocks We Like More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 9 Market-Beating Stocks. 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-micro-cap company Tecnoglass (+1,754% 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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