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.
DigitalOcean (DOCN)
Market Cap: $2.57 billion
Started by brothers Ben and Moisey Uretsky, DigitalOcean (NYSE: DOCN) provides a simple, low-cost platform that allows developers and small and medium-sized businesses to host applications and data in the cloud.
Why Does DOCN Worry Us?
- Net revenue retention rate of 98.2% shows it has a tough time retaining customers
- Gross margin of 59.9% reflects its high servicing costs
At $28.90 per share, DigitalOcean trades at 3.2x forward price-to-sales. To fully understand why you should be careful with DOCN, check out our full research report (it’s free).
Malibu Boats (MBUU)
Market Cap: $577.8 million
Founded in California in 1982, Malibu Boats (NASDAQ: MBUU) is a manufacturer of high-performance sports boats and luxury watercrafts.
Why Should You Sell MBUU?
- Sluggish trends in its boats sold suggest customers aren’t adopting its solutions as quickly as the company hoped
- Earnings per share fell by 28.9% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Malibu Boats’s stock price of $30.11 implies a valuation ratio of 10.1x forward P/E. Read our free research report to see why you should think twice about including MBUU in your portfolio.
Amphastar Pharmaceuticals (AMPH)
Market Cap: $1.19 billion
Founded in 1996 and known for its expertise in complex drug formulations, Amphastar Pharmaceuticals (NASDAQ: AMPH) develops and manufactures technically challenging injectable and inhalation medications, including both generic and proprietary pharmaceutical products.
Why Is AMPH Not Exciting?
- Subscale operations are evident in its revenue base of $730.7 million, meaning it has fewer distribution channels than its larger rivals
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
Amphastar Pharmaceuticals is trading at $25.72 per share, or 7.7x forward P/E. Check out our free in-depth research report to learn more about why AMPH doesn’t pass our bar.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.
