3 Small-Cap Stocks That Fall Short

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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Envista (NVST)

Market Cap: $3.46 billion

Uniting more than 30 trusted brands including Nobel Biocare, Ormco, and DEXIS under one corporate umbrella, Envista Holdings (NYSE:NVST) is a global dental products company that provides equipment, consumables, and specialized technologies for dental professionals.

Why Do We Avoid NVST?

1. Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
2. Negative returns on capital show management lost money while trying to expand the business, and its shrinking returns suggest its past profit sources are losing steam
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Envista’s stock price of $21 implies a valuation ratio of 18.6x forward P/E. If you’re considering NVST for your portfolio, see our FREE research report to learn more.

Jackson Financial (JXN)

Market Cap: $7.23 billion

Spun off from British insurer Prudential plc in 2021 after more than 60 years as its U.S. subsidiary, Jackson Financial (NYSE:JXN) offers annuity products and retirement solutions that help Americans grow and protect their retirement savings and income.

Why Are We Hesitant About JXN?

1. Sluggish 2.8% annualized growth in net premiums earned over the last two years indicates the firm trailed its insurance peers
2. Efficiency has decreased over the last four years as its pre-tax profit margin fell by 33.9 percentage points
3. Earnings per share have contracted by 9.9% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance

Jackson Financial is trading at $104.46 per share, or 0.7x forward P/B. Read our free research report to see why you should think twice about including JXN in your portfolio.

Mercury General (MCY)

Market Cap: $4.81 billion

Founded in 1961 and maintaining a network of over 6,300 independent agents across the country, Mercury General (NYSE:MCY) is an insurance company that primarily sells automobile insurance policies through independent agents in 11 states, with a strong focus on California.

Why Do We Think MCY Will Underperform?

1. Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
2. Muted 1.6% annual book value per share growth over the last five years shows its capital generation lagged behind its insurance peers
3. Below-average return on equity indicates management struggled to find compelling investment opportunities

At $86.93 per share, Mercury General trades at 2.3x forward P/B. Check out our free in-depth research report to learn more about why MCY doesn’t pass our bar.

Stocks We Like More

When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at 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-small-cap company Comfort Systems (+782% 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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