3 Small-Cap Stocks in Hot Water

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

Vishay Intertechnology (VSH)

Market Cap: $2.16 billion

Named after the founder's ancestral village in present-day Lithuania, Vishay Intertechnology (NYSE:VSH) manufactures simple chips and electronic components that are building blocks of virtually all types of electronic devices.

Why Should You Dump VSH?

1. Annual sales declines of 9.1% for the past two years show its products and services struggled to connect with the market during this cycle
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 25.5% annually
3. 15.4 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $15.95 per share, Vishay Intertechnology trades at 7.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why VSH doesn’t pass our bar.

Teladoc (TDOC)

Market Cap: $1.26 billion

Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE:TDOC) is a telemedicine platform that facilitates remote doctor’s visits.

Why Are We Wary of TDOC?

1. Annual revenue growth of 6% over the last three years was below our standards for the consumer internet sector
2. Focus on expanding its platform came at the expense of monetization as its average revenue per user fell by 5.3% annually
3. Projected sales decline of 1.3% for the next 12 months points to a tough demand environment ahead

Teladoc’s stock price of $7.19 implies a valuation ratio of 4.1x forward EV/EBITDA. If you’re considering TDOC for your portfolio, see our FREE research report to learn more.

Krispy Kreme (DNUT)

Market Cap: $466.3 million

Famous for its Original Glazed doughnuts and parent company of Insomnia Cookies, Krispy Kreme (NASDAQ:DNUT) is one of the most beloved and well-known fast-food chains in the world.

Why Do We Avoid DNUT?

1. Earnings per share have contracted annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Krispy Kreme is trading at $2.74 per share, or 27x forward P/E. Dive into our free research report to see why there are better opportunities than DNUT.

Stocks We Like More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking 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 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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.