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.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Tilly's (TLYS)
Market Cap: $119.5 million
With an emphasis on skate and surf culture, Tilly’s (NYSE:TLYS) is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.
Why Do We Avoid TLYS?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Suboptimal cost structure is highlighted by its history of operating margin losses
Tilly’s stock price of $3.91 implies a valuation ratio of 42.1x forward EV-to-EBITDA. If you’re considering TLYS for your portfolio, see our FREE research report to learn more.
Graphic Packaging Holding (GPK)
Market Cap: $3.54 billion
Founded in 1991, Graphic Packaging (NYSE:GPK) is a provider of paper-based packaging solutions for a wide range of products.
Why Are We Bearish on GPK?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.5% annually over the last two years
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Earnings per share have dipped by 36.8% annually over the past two years, which is concerning because stock prices follow EPS over the long term
Graphic Packaging Holding is trading at $11.97 per share, or 13x forward P/E. Read our free research report to see why you should think twice about including GPK in your portfolio.
Omnicell (OMCL)
Market Cap: $1.62 billion
Driven by the vision of an "Autonomous Pharmacy" with zero medication errors, Omnicell (NASDAQ:OMCL) provides medication management automation and adherence tools that help healthcare systems and pharmacies reduce errors and improve efficiency.
Why Do We Pass on OMCL?
- 4.8% annual revenue growth over the last five years was slower than its healthcare peers
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- ROIC of 0.1% reflects management’s challenges in identifying attractive investment opportunities
At $35.63 per share, Omnicell trades at 19.7x forward P/E. To fully understand why you should be careful with OMCL, check out our full research report (it’s free).
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.
Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.
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.