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 pass on and some alternatives you should look into instead.
Janus (JBI)
Market Cap: $589.4 million
Standing out with its digital keyless entry into self-storage room technology, Janus (NYSE:JBI) is a provider of easily accessible self-storage solutions.
Why Do We Steer Clear of JBI?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.2% annually over the last two years
- Earnings per share have contracted by 5.3% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
- Waning returns on capital imply its previous profit engines are losing steam
Janus’s stock price of $4.32 implies a valuation ratio of 6.4x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why JBI doesn’t pass our bar.
Schneider (SNDR)
Market Cap: $5.54 billion
Employing thousands of drivers across the country to make deliveries, Schneider (NYSE:SNDR) makes full truckload and intermodal deliveries regionally and across borders.
Why Do We Think SNDR Will Underperform?
- Annual revenue growth of 3.1% over the last five years was below our standards for the industrials sector
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 16.6% annually while its revenue grew
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Schneider is trading at $31.58 per share, or 23.9x forward P/E. Dive into our free research report to see why there are better opportunities than SNDR.
Align Technology (ALGN)
Market Cap: $10.05 billion
Pioneering an alternative to traditional metal braces with nearly invisible plastic aligners, Align Technology (NASDAQ:ALGN) designs and manufactures Invisalign clear aligners, iTero intraoral scanners, and dental CAD/CAM software for orthodontic and restorative treatments.
Why Are We Wary of ALGN?
- Sales trends were unexciting over the last two years as its 2.5% annual growth was below the typical healthcare company
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 1.4% annually
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $144.11 per share, Align Technology trades at 11.9x forward P/E. To fully understand why you should be careful with ALGN, check out our full research report (it’s free).
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.