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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Harley-Davidson (HOG)
Market Cap: $2.51 billion
Founded in 1903, Harley-Davidson (NYSE: HOG) is an American motorcycle manufacturer known for its heavyweight motorcycles designed for cruising on highways.
Why Is HOG Risky?
- Demand for its offerings was relatively low as its number of motorcycles sold has underwhelmed
- Projected 3.2 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Harley-Davidson is trading at $22.39 per share, or 74.2x forward P/E. If you’re considering HOG for your portfolio, see our FREE research report to learn more.
Commerce Bancshares (CBSH)
Market Cap: $7.41 billion
Founded in 1865 during the post-Civil War economic boom, Commerce Bancshares (NASDAQGS:CBSH) is a Midwest-focused bank holding company that provides retail, commercial, and wealth management services to individuals and businesses.
Why Does CBSH Give Us Pause?
- Muted 5.6% annual revenue growth over the last five years shows its demand lagged behind its banking peers
- Net interest income trends were unexciting over the last five years as its 6% annual growth was below the typical banking firm
- Efficiency ratio is expected to worsen by 1.4 percentage points over the next year
At $49.73 per share, Commerce Bancshares trades at 1.6x forward P/B. Check out our free in-depth research report to learn more about why CBSH doesn’t pass our bar.
WaFd Bank (WAFD)
Market Cap: $2.47 billion
Founded in 1917 and rebranded from Washington Federal in 2023, WaFd (NASDAQ: WAFD) is a bank holding company that provides lending, deposit services, and insurance through its Washington Federal Bank subsidiary across eight western states.
Why Do We Avoid WAFD?
- Annual net interest income growth of 7.5% over the last five years was below our standards for the banking sector
- Inferior net interest margin of 2.6% means it must compensate for lower profitability through increased loan originations
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 2.6% annually
WaFd Bank’s stock price of $32.55 implies a valuation ratio of 0.9x forward P/B. To fully understand why you should be careful with WAFD, check out our full research report (it’s free).
Stocks We Like More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
