3 Small-Cap Stocks That Concern Us

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.

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.

Marcus & Millichap (MMI)

Market Cap: $1.24 billion

Founded in 1971, Marcus & Millichap (NYSE:MMI) specializes in commercial real estate investment sales, financing, research, and advisory services.

Why Is MMI Risky?

1. Products and services aren't resonating with the market as its revenue declined by 3.2% annually over the last five years
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Waning returns on capital imply its previous profit engines are losing steam

Marcus & Millichap’s stock price of $31.78 implies a valuation ratio of 318.4x forward P/E. If you’re considering MMI for your portfolio, see our FREE research report to learn more.

WeightWatchers (WW)

Market Cap: $3.33 billion

Known by many for its old cable television commercials, WeightWatchers (NASDAQ:WW) is a wellness company offering a range of products and services promoting weight loss and healthy habits.

Why Do We Think WW Will Underperform?

1. Sluggish trends in its members suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $40.89 per share, WeightWatchers trades at 25.9x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why WW doesn’t pass our bar.

ABM (ABM)

Market Cap: $2.97 billion

With roots dating back to 1909 as a window washing company, ABM Industries (NYSE:ABM) provides integrated facility management, infrastructure, and mobility solutions across various sectors including commercial, manufacturing, education, and aviation.

Why Do We Steer Clear of ABM?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Performance over the past two years shows its incremental sales were less profitable as its earnings per share were flat
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.3 percentage points

ABM is trading at $47.70 per share, or 12.3x forward P/E. To fully understand why you should be careful with ABM, 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 5 Strong Momentum Stocks for this week. 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.

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