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.
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 pass on and some alternatives you should look into instead.
Cushman & Wakefield (CWK)
Market Cap: $2.78 billion
With expertise in the commercial real estate sector, Cushman & Wakefield (NYSE:CWK) is a global Chicago-based real estate firm offering a comprehensive range of services to clients.
Why Are We Bearish on CWK?
- Annual sales growth of 5.2% over the last five years lagged behind its consumer discretionary peers as its large revenue base made it difficult to generate incremental demand
- Poor free cash flow margin of 1.5% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Returns on capital haven’t budged, indicating management couldn’t drive additional value creation
Cushman & Wakefield’s stock price of $11.83 implies a valuation ratio of 7.4x forward P/E. Read our free research report to see why you should think twice about including CWK in your portfolio.
Phibro Animal Health (PAHC)
Market Cap: $1.52 billion
With a portfolio of approximately 800 product lines serving farmers and veterinarians in 90 countries, Phibro Animal Health (NASDAQ:PAHC) develops, manufactures, and markets health products for livestock and companion animals, including antibacterials, vaccines, nutritional supplements, and mineral additives.
Why Do We Think Twice About PAHC?
- Subscale operations are evident in its revenue base of $1.52 billion, meaning it has fewer distribution channels than its larger rivals
- Estimated sales growth of 3.6% for the next 12 months implies demand will slow from its two-year trend
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.9% for the last five years
At $37.44 per share, Phibro Animal Health trades at 10.8x forward P/E. Dive into our free research report to see why there are better opportunities than PAHC.
RPC (RES)
Market Cap: $1.31 billion
Operating primarily in the Permian Basin with 10 hydraulic fracturing fleets, RPC (NYSE:RES) provides specialized services and equipment like hydraulic fracturing, coiled tubing, and cementing to help oil and gas companies complete and maintain wells.
Why Is RES Not Exciting?
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 28%
- Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 2.9 percentage points
- Low free cash flow margin of 5.4% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
RPC is trading at $6 per share, or 20.2x forward P/E. To fully understand why you should be careful with RES, check out our full research report (it’s free).
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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 Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.