3 Small-Cap Stocks with Open Questions

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.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Wayfair (W)

Market Cap: $6.85 billion

Founded in 2002 by Niraj Shah, Wayfair (NYSE:W) is a leading online retailer of mass-market home goods in the US, UK, Canada, and Germany.

Why Should You Dump W?

1. Intense competition is diverting traffic from its platform as its active customers fell by 2.1% annually
2. Bad unit economics and steep infrastructure costs are reflected in its low gross margin of 30.5%
3. 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Wayfair is trading at $53.06 per share, or 13.5x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than W.

Ruger (RGR)

Market Cap: $582.1 million

Founded in 1949, Ruger (NYSE:RGR) is an American manufacturer of firearms for the commercial sporting market.

Why Should You Sell RGR?

1. Annual sales declines of 3.9% for the past two years show its products and services struggled to connect with the market
2. Earnings per share have contracted by 26.8% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $35.16 per share, Ruger trades at 10.9x forward EV-to-EBITDA. To fully understand why you should be careful with RGR, check out our full research report (it’s free).

Provident Financial Services (PFS)

Market Cap: $2.38 billion

Founded in 1839 and serving communities across New Jersey, Pennsylvania, and New York, Provident Financial Services (NYSE:PFS) operates a regional bank providing commercial, residential, and consumer lending alongside wealth management and insurance services.

Why Are We Cautious About PFS?

1. Incremental sales over the last two years were much less profitable as its earnings per share fell by 26.5% annually while its revenue grew
2. Tangible book value per share tumbled by 1.4% annually over the last five years, showing bank sector trends are working against its favor during this cycle
3. Low interest coverage ratio indicates the company may struggle to service its debt obligations if operational performance deteriorates

Provident Financial Services’s stock price of $18.19 implies a valuation ratio of 0.9x forward P/B. Check out our free in-depth research report to learn more about why PFS doesn’t pass our bar.

Stocks We Like More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio 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-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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