3 Small-Cap Stocks We Think Twice About

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.

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.

Kennametal (KMT)

Market Cap: $2.19 billion

Involved in manufacturing hard tips of anti-tank projectiles in World War II, Kennametal (NYSE:KMT) is a provider of industrial materials and tools for various sectors.

Why Do We Pass on KMT?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 4.7% annually, worse than its revenue
3. Underwhelming 7.7% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam

At $28.74 per share, Kennametal trades at 19x forward P/E. To fully understand why you should be careful with KMT, check out our full research report (it’s free for active Edge members).

ICU Medical (ICUI)

Market Cap: $3.58 billion

Founded in 1984 and named for its initial focus on intensive care units, ICU Medical (NASDAQ:ICUI) develops and manufactures medical products for infusion therapy, vascular access, and vital care applications used in hospitals and other healthcare settings.

Why Do We Steer Clear of ICUI?

1. Muted 2.1% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
2. Sales are projected to tank by 7.7% over the next 12 months as demand evaporates
3. Free cash flow margin shrank by 11.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

ICU Medical is trading at $145.18 per share, or 19.7x forward P/E. Dive into our free research report to see why there are better opportunities than ICUI.

CVB Financial (CVBF)

Market Cap: $2.67 billion

With roots dating back to 1974 and a focus on serving small and medium-sized businesses, CVB Financial (NASDAQ:CVBF) operates Citizens Business Bank, providing banking, lending, and trust services to businesses and individuals across California.

Why Should You Sell CVBF?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.5% annually over the last two years
2. 1.4% annual net interest income growth over the last five years was slower than its banking peers
3. Earnings per share lagged its peers over the last five years as they only grew by 2.4% annually

CVB Financial’s stock price of $19.54 implies a valuation ratio of 1.2x forward P/B. If you’re considering CVBF for your portfolio, see our FREE research report to learn more.

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 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.