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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Edgewell Personal Care (EPC)
Market Cap: $789.9 million
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 Should You Dump EPC?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 4.5 percentage points
- Free cash flow margin dropped by 5.9 percentage points over the last year, implying the company became more capital intensive as competition picked up
At $17.06 per share, Edgewell Personal Care trades at 7.4x forward P/E. Check out our free in-depth research report to learn more about why EPC doesn’t pass our bar.
E.W. Scripps (SSP)
Market Cap: $388.1 million
Founded as a chain of daily newspapers, E.W. Scripps (NASDAQ: SSP) is a diversified media enterprise operating a range of local television stations, national networks, and digital media platforms.
Why Are We Out on SSP?
- Annual revenue growth of 6.5% over the last five years was below our standards for the consumer discretionary sector
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
E.W. Scripps’s stock price of $4.35 implies a valuation ratio of 1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SSP in your portfolio.
Scholastic (SCHL)
Market Cap: $756.2 million
Creator of the legendary Scholastic Book Fair, Scholastic (NASDAQ: SCHL) is an international company specializing in children's publishing, education, and media services.
Why Do We Avoid SCHL?
- Sales trends were unexciting over the last five years as its 1.9% annual growth was below the typical consumer discretionary company
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.9% for the last two years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Scholastic is trading at $30.15 per share, or 19x forward P/E. Dive into our free research report to see why there are better opportunities than SCHL.
High-Quality Stocks for All Market Conditions
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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