3 Small-Cap Stocks We Approach with Caution

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.

Getty Images (GETY)

Market Cap: $528.1 million

With a vast library of over 562 million visual assets documenting everything from breaking news to iconic historical moments, Getty Images (NYSE:GETY) is a global visual content marketplace that licenses photos, videos, illustrations, and music to businesses, media outlets, and creative professionals.

Why Does GETY Worry Us?

1. Muted 1.3% annual revenue growth over the last two years shows its demand lagged behind its business services peers
2. Free cash flow margin shrank by 11.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Waning returns on capital imply its previous profit engines are losing steam

Getty Images’s stock price of $1.27 implies a valuation ratio of 18.2x forward P/E. To fully understand why you should be careful with GETY, check out our full research report (it’s free).

Universal Logistics (ULH)

Market Cap: $466.3 million

Founded in 1932, Universal Logistics (NASDAQ:ULH) is a provider of customized transportation and logistics solutions operating throughout the United States and in Mexico, Canada, and Colombia.

Why Do We Steer Clear of ULH?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.7% annually over the last two years
2. Investment activity picked up over the last five years, pressuring its weak free cash flow margin of -0.9%
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Universal Logistics is trading at $17.59 per share, or 25x forward P/E. Read our free research report to see why you should think twice about including ULH in your portfolio.

First Commonwealth Financial (FCF)

Market Cap: $1.87 billion

Tracing its roots back to the Great Depression era of 1934, First Commonwealth Financial (NYSE:FCF) is a financial holding company that provides consumer and commercial banking, wealth management, and insurance services across Pennsylvania and Ohio.

Why Does FCF Give Us Pause?

1. Annual revenue growth of 3.2% over the last two years was below our standards for the banking sector
2. 8.6% annual net interest income growth over the last five years was slower than its banking peers
3. Incremental sales over the last two years were much less profitable as its earnings per share fell by 6.6% annually while its revenue grew

At $18.00 per share, First Commonwealth Financial trades at 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than FCF.

Stocks We Like More

Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum 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.