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.
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.
10x Genomics (TXG)
Market Cap: $8.31 billion
Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ:TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.
Why Is TXG Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.2% annually over the last two years
- Modest revenue base of $616.9 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Negative returns on capital show that some of its growth strategies have backfired
10x Genomics is trading at $64.33 per share, or 1,447.1x forward P/E. Read our free research report to see why you should think twice about including TXG in your portfolio.
Supernus Pharmaceuticals (SUPN)
Market Cap: $2.62 billion
With a diverse portfolio of eight FDA-approved medications targeting neurological conditions, Supernus Pharmaceuticals (NASDAQ:SUPN) develops and markets treatments for central nervous system disorders including epilepsy, ADHD, Parkinson's disease, and migraine.
Why Do We Think SUPN Will Underperform?
- 6.5% annual revenue growth over the last five years was slower than its healthcare peers
- Modest revenue base of $822.8 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 16.5 percentage points
Supernus Pharmaceuticals’s stock price of $45.10 implies a valuation ratio of 2.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than SUPN.
Community Bank (CBU)
Market Cap: $3.32 billion
Tracing its roots back to 1866 in upstate New York, Community Financial System (NYSE:CBU) is a financial holding company that provides banking, employee benefits, wealth management, and insurance services to retail, commercial, and municipal customers.
Why Is CBU Not Exciting?
- Muted 7.5% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Annual earnings per share growth of 4% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Annual tangible book value per share declines of 1.4% for the past five years show its capital management struggled during this cycle
At $63.06 per share, Community Bank trades at 1.5x forward P/B. To fully understand why you should be careful with CBU, check out our full research report (it’s free).
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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-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.