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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
L.B. Foster (FSTR)
Market Cap: $282.4 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 Dump FSTR?
- Sales tumbled by 1.6% annually over the last five years, showing market trends are working against its favor during this cycle
- Low free cash flow margin of 0.3% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- ROIC of 4.5% reflects management’s challenges in identifying attractive investment opportunities
L.B. Foster is trading at $26.65 per share, or 6.2x forward EV-to-EBITDA. If you’re considering FSTR for your portfolio, see our FREE research report to learn more.
Kforce (KFRC)
Market Cap: $468.5 million
With nearly 60 years of matching skilled professionals with the right opportunities, Kforce (NYSE:KFRC) is a professional staffing company that specializes in placing technology and finance experts with businesses on both temporary and permanent bases.
Why Do We Pass on KFRC?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 9.2% annually over the last two years
- Sales were less profitable over the last two years as its earnings per share fell by 13.8% annually, worse than its revenue declines
- Waning returns on capital imply its previous profit engines are losing steam
Kforce’s stock price of $26.50 implies a valuation ratio of 13.1x forward P/E. Dive into our free research report to see why there are better opportunities than KFRC.
Atlantic Union Bankshares (AUB)
Market Cap: $4.73 billion
Tracing its roots back to 1902 when it first opened its doors in Virginia, Atlantic Union Bankshares (NYSE:AUB) is a full-service regional bank providing commercial and retail banking, wealth management, and insurance services throughout Virginia and parts of Maryland and North Carolina.
Why Are We Wary of AUB?
- Tangible book value per share stagnated over the last five years, limiting its ability to leverage its balance sheet to make additional investments
- Capital generation will likely be soft over the next 12 months as Wall Street’s estimates imply tepid tangible book value per share growth of 7.2%
- Tier one capital ratio of 9.8% raises concerns about the firm’s ability to maintain adequate liquidity
At $33.40 per share, Atlantic Union Bankshares trades at 1x forward P/B. To fully understand why you should be careful with AUB, check out our full research report (it’s free for active Edge members).
Stocks We Like More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 9 Market-Beating Stocks. 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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