3 Small-Cap Stocks with Warning Signs

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

Appian (APPN)

Market Cap: $2.61 billion

Powering billions of transactions daily since its founding in 1999, Appian (NASDAQ:APPN) provides a low-code platform that helps businesses automate complex processes and operationalize artificial intelligence without extensive programming knowledge.

Why Do We Think Twice About APPN?

1. Annual revenue growth of 14.6% over the last two years was below our standards for the software sector
2. Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
3. Free cash flow margin is forecasted to shrink by 6 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors

At $35.42 per share, Appian trades at 3.4x forward price-to-sales. To fully understand why you should be careful with APPN, check out our full research report (it’s free for active Edge members).

Molson Coors (TAP)

Market Cap: $9.23 billion

Sporting an impressive roster of iconic beer brands, Molson Coors (NYSE:TAP) is a global brewing giant with a rich history dating back more than two centuries.

Why Are We Out on TAP?

1. Declining unit sales over the past two years suggest it might have to lower prices to stimulate growth
2. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 33.7 percentage points
3. ROIC of -0.7% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

Molson Coors is trading at $46.99 per share, or 8.5x forward P/E. Read our free research report to see why you should think twice about including TAP in your portfolio.

Sphere Entertainment (SPHR)

Market Cap: $3.36 billion

Famous for its viral Las Vegas Sphere venue, Sphere Entertainment (NYSE:SPHR) hosts live entertainment events and distributes content across various media platforms.

Why Do We Pass on SPHR?

1. Lackluster 8.5% annual revenue growth over the last five years indicates the company is losing ground to competitors
2. Low free cash flow margin of 1.9% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Rising returns on capital show management is making relatively better investments

Sphere Entertainment’s stock price of $94.80 implies a valuation ratio of 14.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SPHR doesn’t pass our bar.

Stocks We Like More

Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. 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.