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.
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.
Victoria's Secret (VSCO)
Market Cap: $5.04 billion
Spun off from L Brands in 2020, Victoria’s Secret (NYSE: VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.
Why Do We Avoid VSCO?
- Flat sales over the last three years suggest it must innovate and find new ways to grow
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Earnings per share have contracted by 19.1% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
Victoria's Secret is trading at $63.34 per share, or 22.1x forward P/E. To fully understand why you should be careful with VSCO, check out our full research report (it’s free).
Kimball Electronics (KE)
Market Cap: $689.7 million
Founded in 1961, Kimball Electronics (NYSE: KE) is a global contract manufacturer specializing in electronics and manufacturing solutions for automotive, medical, and industrial markets.
Why Should You Sell KE?
- Annual sales declines of 10.8% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share have contracted by 2.4% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Low free cash flow margin of -0.1% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $28.28 per share, Kimball Electronics trades at 22.5x forward P/E. Read our free research report to see why you should think twice about including KE in your portfolio.
Glacier Bancorp (GBCI)
Market Cap: $6.17 billion
Operating through seventeen distinct bank divisions with local brands and management teams, Glacier Bancorp (NYSE: GBCI) is a bank holding company that provides various banking services to individuals and businesses across eight western states.
Why Do We Steer Clear of GBCI?
- Annual net interest income growth of 7.4% over the last five years was below our standards for the banking sector
- Expenses have increased as a percentage of revenue over the last five years as its efficiency ratio degraded by 11.2 percentage points
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 3.2% annually while its revenue grew
Glacier Bancorp’s stock price of $47.47 implies a valuation ratio of 1.5x forward P/B. Dive into our free research report to see why there are better opportunities than GBCI.
High-Quality Stocks for All Market Conditions
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check 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 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.
