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.
Luxfer (LXFR)
Market Cap: $309.6 million
With its magnesium alloys used in the construction of the famous Spirit of St. Louis aircraft, Luxfer (NYSE: LXFR) offers specialized materials, components, and gas containment devices to various industries.
Why Do We Steer Clear of LXFR?
- Sales tumbled by 2.6% annually over the last two years, showing market trends are working against its favor during this cycle
- Forecasted revenue decline of 6.5% for the upcoming 12 months implies demand will fall even further
- Earnings per share lagged its peers over the last five years as they only grew by 2.3% annually
Luxfer is trading at $11.63 per share, or 10.5x forward P/E. Read our free research report to see why you should think twice about including LXFR in your portfolio.
Evolent Health (EVH)
Market Cap: $298.1 million
Founded in 2011 to transform how healthcare is delivered to patients with complex needs, Evolent Health (NYSE: EVH) provides specialty care management services and technology solutions that help health plans and providers deliver better care for patients with complex conditions.
Why Does EVH Worry Us?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2.3% annually over the last two years
- Push for growth has led to negative returns on capital, signaling value destruction, and its decreasing returns suggest its historical profit centers are aging
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Evolent Health’s stock price of $2.71 implies a valuation ratio of 16.7x forward P/E. Check out our free in-depth research report to learn more about why EVH doesn’t pass our bar.
Origin Bancorp (OBK)
Market Cap: $1.24 billion
Founded in 1912 during the early boom days of Louisiana banking, Origin Bancorp (NYSE: OBK) is a financial holding company that provides personalized banking services to businesses, municipalities, and individuals across Texas, Louisiana, and Mississippi.
Why Is OBK Not Exciting?
- Muted 7.5% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Net interest margin of 3.4% reflects its high servicing and capital costs
- Estimated tangible book value per share growth of 8.2% for the next 12 months implies profitability will slow from its two-year trend
At $39.93 per share, Origin Bancorp trades at 0.9x forward P/B. To fully understand why you should be careful with OBK, check out our full research report (it’s free).
Stocks We Like More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
