Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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.
Baldwin Insurance Group (BWIN)
Market Cap: $2.04 billion
Rebranded from BRP Group in May 2024, Baldwin Insurance Group (NASDAQ:BWIN) is an independent insurance distribution company that provides tailored insurance, risk management, and employee benefits solutions to businesses and individuals.
Why Does BWIN Fall Short?
- Free cash flow margin dropped by 10.7 percentage points over the last five years, implying the company increased its investment activities to fend off competitors
- 9× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Baldwin Insurance Group’s stock price of $21.10 implies a valuation ratio of 10.8x forward P/E. If you’re considering BWIN for your portfolio, see our FREE research report to learn more.
SiteOne (SITE)
Market Cap: $5.8 billion
Known for distributing John Deere tractors and LESCO turf care products, SiteOne Landscape Supply (NYSE:SITE) provides landscaping products and services to professionals, including irrigation, lighting, and nursery supplies.
Why Are We Out on SITE?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings per share fell by 3.9% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
SiteOne is trading at $130.46 per share, or 29.6x forward P/E. Read our free research report to see why you should think twice about including SITE in your portfolio.
JELD-WEN (JELD)
Market Cap: $98.39 million
Founded in the 1960s as a general wood-making company, JELD-WEN (NYSE:JELD) manufactures doors, windows, and other related building products.
Why Should You Dump JELD?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $1.21 per share, JELD-WEN trades at 9.3x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than JELD.
Stocks We Like More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don't just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
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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.