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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Amneal (AMRX)
Market Cap: $4.54 billion
Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ: AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.
Why Are We Hesitant About AMRX?
- 1.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Underwhelming 4.1% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $14.43 per share, Amneal trades at 16.9x forward P/E. To fully understand why you should be careful with AMRX, check out our full research report (it’s free).
Array (AD)
Market Cap: $4.29 billion
Operating as a majority-owned subsidiary of Telephone and Data Systems since its founding in 1983, Array (NYSE: Array) is a regional wireless telecommunications provider serving 4.6 million customers across 21 states with mobile phone, internet, and IoT services.
Why Do We Steer Clear of AD?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 6.8% annually over the last five years
- Earnings per share have dipped by 42.7% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
Array’s stock price of $49.62 implies a valuation ratio of 23.6x forward EV-to-EBITDA. If you’re considering AD for your portfolio, see our FREE research report to learn more.
Walker & Dunlop (WD)
Market Cap: $2.20 billion
Originating as a small mortgage banking firm during the Great Depression in 1937, Walker & Dunlop (NYSE: WD) provides commercial real estate financing, property sales, appraisal, and investment management services with a focus on multifamily properties.
Why Does WD Fall Short?
- Net interest income tumbled by 43.8% annually over the last five years, showing market trends are working against its favor during this cycle
- Earnings per share fell by 6.7% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Tangible book value per share tumbled by 4.4% annually over the last five years, showing banking sector trends are working against its favor during this cycle
Walker & Dunlop is trading at $64.50 per share, or 1.1x forward P/B. To fully understand why you should be careful with WD, check out our full research report (it’s free).
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 9 Market-Beating Stocks. 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.
