Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Carriage Services (CSV)
Market Cap: $691.4 million
Established in 1991, Carriage Services (NYSE: CSV) is a provider of funeral and cemetery services in the United States.
Why Are We Out on CSV?
- 5.7% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Low free cash flow margin of 12.6% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate
Carriage Services is trading at $43.95 per share, or 13.1x forward P/E. Read our free research report to see why you should think twice about including CSV in your portfolio.
Xerox (XRX)
Market Cap: $334.2 million
Pioneering the modern office copier and inventing technologies like Ethernet and the laser printer, Xerox (NASDAQ: XRX) provides document management systems, printing technology, and workplace solutions to businesses of all sizes across the globe.
Why Is XRX Risky?
- Sales tumbled by 2.6% annually over the last five years, showing market trends are working against its favor during this cycle
- Sales were less profitable over the last five years as its earnings per share fell by 15.6% annually, worse than its revenue declines
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $2.64 per share, Xerox trades at 3.2x forward P/E. Dive into our free research report to see why there are better opportunities than XRX.
CNO Financial Group (CNO)
Market Cap: $3.93 billion
Rebranded from Conseco in 2010 to signal a fresh start after navigating financial challenges, CNO Financial Group (NYSE: CNO) develops and markets health insurance, annuities, and life insurance products primarily targeting middle-income pre-retirees and retirees.
Why Does CNO Worry Us?
- Net premiums earned plateaued over the last five years, signaling weak incremental demand for its insurance policies
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.8%
- Book value per share tumbled by 5.7% annually over the last five years, showing insurance sector trends are working against its favor during this cycle
CNO Financial Group’s stock price of $41.25 implies a valuation ratio of 1.5x forward P/B. Check out our free in-depth research report to learn more about why CNO doesn’t pass our bar.
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 6 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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