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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are three small-cap stocks to pass on and some alternatives you should look into instead.
Bath and Body Works (BBWI)
Market Cap: $3.90 billion
Spun off from L Brands in 2020, Bath & Body Works (NYSE: BBWI) is a personal care and home fragrance retailer where consumers can find specialty shower gels, scented candles for the home, and lotions.
Why Are We Cautious About BBWI?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Sales are projected to tank by 1.8% over the next 12 months as its demand continues evaporating
- Earnings per share lagged its peers over the last three years as they only grew by 4.5% annually
At $19.38 per share, Bath and Body Works trades at 7.4x forward P/E. To fully understand why you should be careful with BBWI, check out our full research report (it’s free).
CACI (CACI)
Market Cap: $10.62 billion
Founded to commercialize SIMSCRIPT, CACI International (NYSE: CACI) offers defense, intelligence, and IT solutions to support national security and government transformation efforts.
Why Do We Think Twice About CACI?
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 3.9 percentage points
- Underwhelming 9.8% return on capital reflects management’s difficulties in finding profitable growth opportunities
- Returns on capital haven’t budged, indicating management couldn’t drive additional value creation
CACI is trading at $469.78 per share, or 16.1x forward P/E. If you’re considering CACI for your portfolio, see our FREE research report to learn more.
AdaptHealth (AHCO)
Market Cap: $1.39 billion
With a network of approximately 680 locations serving patients across all 50 states, AdaptHealth (NASDAQ: AHCO) provides home medical equipment, supplies, and related services to patients with chronic conditions like sleep apnea, diabetes, and respiratory disorders.
Why Does AHCO Fall Short?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Earnings per share fell by 12.4% annually over the last five years while its revenue grew, partly because it diluted shareholders
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging
AdaptHealth’s stock price of $10.61 implies a valuation ratio of 10.8x forward P/E. Check out our free in-depth research report to learn more about why AHCO doesn’t pass our bar.
Stocks We Like More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
