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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
nCino (NCNO)
Market Cap: $2.34 billion
Born from the internal technology needs of a community bank in 2011, nCino (NASDAQ:NCNO) provides cloud-based software that helps financial institutions streamline client onboarding, loan origination, and account opening processes.
Why Does NCNO Give Us Pause?
- Average billings growth of 9.6% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 7.8% for the next 12 months implies demand will slow from its two-year trend
- Gross margin of 62.2% reflects its relatively high servicing costs
nCino is trading at $22.15 per share, or 3.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than NCNO.
Sportsman's Warehouse (SPWH)
Market Cap: $49.91 million
A go-to destination for individuals passionate about hunting, fishing, camping, hiking, shooting sports, and more, Sportsman's Warehouse (NASDAQ:SPWH) is an American specialty retailer offering a diverse range of active gear, equipment, and apparel.
Why Are We Out on SPWH?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Performance over the past three years was negatively impacted by new share issuances as its earnings per share dropped by 59.3% annually, worse than its revenue
- High net-debt-to-EBITDA ratio of 18× could force the company to raise capital on unfavorable terms if market conditions deteriorate
At $1.28 per share, Sportsman's Warehouse trades at 17.1x forward EV-to-EBITDA. To fully understand why you should be careful with SPWH, check out our full research report (it’s free).
Applied Digital (APLD)
Market Cap: $8.25 billion
Pivoting from its origins in cryptocurrency mining to become a key player in the AI infrastructure boom, Applied Digital (NASDAQ:APLD) designs and operates specialized data centers that provide high-performance computing infrastructure for artificial intelligence and blockchain applications.
Why Are We Wary of APLD?
- Smaller revenue base of $611.3 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy (but also enables it to grow faster if it executes properly)
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Applied Digital’s stock price of $28.26 implies a valuation ratio of 31.6x forward EV-to-EBITDA. If you’re considering APLD for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is 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% between October 2022 and February 2026. AppLovin before it ran 753% between February 2024 and February 2026. Nvidia before it ran 1,178% between January 2023 and February 2026. 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 (+1,460% 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.