3 Small-Cap Stocks with Warning Signs

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.

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.

The Honest Company (HNST)

Market Cap: $319.7 million

Co-founded by actress Jessica Alba, The Honest Company (NASDAQ:HNST) sells diapers and wipes, skin care products, and household cleaning products.

Why Is HNST Risky?

1. Smaller revenue base of $383.1 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Free cash flow margin dropped by 13.2 percentage points over the last year, implying the company became more capital intensive as competition picked up
3. Negative returns on capital show management lost money while trying to expand the business

The Honest Company is trading at $2.87 per share, or 24.5x forward P/E. Dive into our free research report to see why there are better opportunities than HNST.

Concrete Pumping (BBCP)

Market Cap: $359.8 million

Going public via SPAC in 2018, Concrete Pumping (NASDAQ:BBCP) is a provider of concrete pumping and waste management services in the United States and the United Kingdom.

Why Do We Avoid BBCP?

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. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.8 percentage points

Concrete Pumping’s stock price of $7.00 implies a valuation ratio of 53.5x forward P/E. To fully understand why you should be careful with BBCP, check out our full research report (it’s free for active Edge members).

Horace Mann Educators (HMN)

Market Cap: $1.88 billion

Founded in 1945 and named after the 19th-century education reformer known as the "father of American public education," Horace Mann Educators (NYSE:HMN) is an insurance company that specializes in providing auto, property, life, and retirement products tailored for educators and other public service employees.

Why Do We Think HMN Will Underperform?

1. Sluggish 5.3% annualized growth in net premiums earned over the last five years indicates the firm trailed its insurance peers
2. Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 3.2% annually over the last five years
3. Low return on equity reflects management’s struggle to allocate funds effectively

At $46.12 per share, Horace Mann Educators trades at 1.3x forward P/B. Read our free research report to see why you should think twice about including HMN in your portfolio.

Stocks We Like More

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 6 Stocks for this week. 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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