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.

The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Edgewell Personal Care (EPC)

Market Cap: $1.02 billion

Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care (NYSE:EPC) sells personal care products in the skin and sun care, shave, and feminine care categories.

Why Do We Think EPC Will Underperform?

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. Overall productivity fell over the last year as its plummeting sales were accompanied by a decline in its operating margin
3. High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $21.89 per share, Edgewell Personal Care trades at 10.2x forward P/E. Check out our free in-depth research report to learn more about why EPC doesn’t pass our bar.

Richardson Electronics (RELL)

Market Cap: $200.3 million

Founded in 1947, Richardson Electronics (NASDAQ:RELL) is a distributor of power grid and microwave tubes as well as consumables related to those products.

Why Should You Dump RELL?

1. Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 3.4% declines over the past two years
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.9% for the last five years
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Richardson Electronics is trading at $14.40 per share, or 43.1x forward P/E. Read our free research report to see why you should think twice about including RELL in your portfolio.

Corcept (CORT)

Market Cap: $4.20 billion

Focusing on the powerful stress hormone that affects everything from metabolism to immune function, Corcept Therapeutics (NASDAQ:CORT) develops and markets medications that modulate cortisol to treat endocrine disorders, cancer, and neurological diseases.

Why Are We Wary of CORT?

1. Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 24.7 percentage points
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 6.5% annually while its revenue grew
3. Free cash flow margin dropped by 21.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up

Corcept’s stock price of $39.96 implies a valuation ratio of 94x forward P/E. To fully understand why you should be careful with CORT, check out our full research report (it’s free).

High-Quality Stocks for All Market Conditions

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. Check out 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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.