3 Small-Cap Stocks That Fall Short

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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.

ChargePoint (CHPT)

Market Cap: $229.3 million

The most prominent EV charging company during the COVID bull market, ChargePoint (NYSE:CHPT) is a provider of electric vehicle charging technology solutions in North America and Europe.

Why Are We Wary of CHPT?

1. Annual sales declines of 15.6% for the past two years show its products and services struggled to connect with the market during this cycle
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. EBITDA losses may force it to accept punitive lending terms or high-cost debt

ChargePoint is trading at $9.82 per share, or 0.6x forward price-to-sales. If you’re considering CHPT for your portfolio, see our FREE research report to learn more.

Lucid (LCID)

Market Cap: $5.51 billion

Founded by a former Tesla Vice President, Lucid Group (NASDAQ:LCID) designs, manufactures, and sells luxury electric vehicles with long-range capabilities.

Why Are We Cautious About LCID?

1. Negative gross margin means it loses money on every sale and must pivot or scale quickly to survive
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Lucid’s stock price of $16.96 implies a valuation ratio of 2.5x forward price-to-sales. To fully understand why you should be careful with LCID, check out our full research report (it’s free for active Edge members).

First American Financial (FAF)

Market Cap: $6.53 billion

Tracing its roots back to 1889 when California was experiencing its first major real estate boom, First American Financial (NYSE:FAF) provides title insurance, settlement services, and risk solutions for residential and commercial real estate transactions across the United States and internationally.

Why Should You Sell FAF?

1. Stagnant net premiums earned over the last five years suggest the firm needs alternative growth strategies
2. Day-to-day expenses have swelled relative to revenue over the last four years as its pre-tax profit margin fell by 9.8 percentage points
3. Flat earnings per share over the last five years underperformed the sector average

At $64.10 per share, First American Financial trades at 1.2x forward P/B. Check out our free in-depth research report to learn more about why FAF doesn’t pass our bar.

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.

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