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.
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 avoid and some other investments you should consider instead.
Upland Software (UPLD)
Market Cap: $80.56 million
Operating under the mantra "land and expand," Upland Software (NASDAQ: UPLD) provides cloud-based applications that help organizations manage projects, workflows, and digital transformation across various business functions.
Why Does UPLD Give Us Pause?
- Products and services have few die-hard fans as sales have declined by 6.8% annually over the last three years
- Projected sales decline of 19.2% over the next 12 months indicates demand will continue deteriorating
- Historical operating margin losses point to an inefficient cost structure
Upland Software is trading at $2.86 per share, or 0.4x forward price-to-sales. Read our free research report to see why you should think twice about including UPLD in your portfolio.
L.B. Foster (FSTR)
Market Cap: $271.1 million
Founded with a $2,500 loan, L.B. Foster (NASDAQ: FSTR) is a provider of products and services for the transportation and energy infrastructure sectors, including rail products, construction materials, and coating solutions.
Why Should You Sell FSTR?
- Sales tumbled by 1.6% annually over the last five years, showing market trends are working against its favor during this cycle
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.3% for the last five years
- ROIC of 4.5% reflects management’s challenges in identifying attractive investment opportunities
At $25.58 per share, L.B. Foster trades at 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than FSTR.
MDU Resources (MDU)
Market Cap: $3.33 billion
Founded to provide electricity to towns in Minnesota, MDU Resources (NYSE: MDU) provides products and services in the utilities and construction materials industries.
Why Do We Think MDU Will Underperform?
- Annual sales declines of 37.6% for the past five years show its products and services struggled to connect with the market during this cycle
- Earnings per share have contracted by 9.9% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
MDU Resources’s stock price of $16.48 implies a valuation ratio of 16.1x forward P/E. If you’re considering MDU for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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