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.
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.
CoreCivic (CXW)
Market Cap: $1.87 billion
Originally founded in 1983 as the first private prison company in the United States, CoreCivic (NYSE: CXW) operates correctional facilities, detention centers, and residential reentry programs for government agencies across the United States.
Why Are We Hesitant About CXW?
- Muted 3% annual revenue growth over the last five years shows its demand lagged behind its business services peers
- Free cash flow margin dropped by 10.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- ROIC of 5.9% reflects management’s challenges in identifying attractive investment opportunities
CoreCivic is trading at $18.70 per share, or 11.7x forward P/E. Read our free research report to see why you should think twice about including CXW in your portfolio.
FirstSun Capital Bancorp (FSUN)
Market Cap: $1.11 billion
Tracing its roots back to 1892 when it first opened its doors in Kansas, FirstSun Capital Bancorp (NASDAQ: FSUN) operates Sunflower Bank, providing commercial and consumer banking services to businesses and individuals across the Southwest region.
Why Are We Wary of FSUN?
- Sales trends were unexciting over the last two years as its 5.5% annual growth was below the typical banking company
- Net interest margin shrank by 20.8 basis points (100 basis points = 1 percentage point) over the last two years, suggesting the profitability of its loan book is decreasing or the market is becoming more competitive
- Forecasted tangible book value per share decline of 3.3% for the upcoming 12 months implies profitability will deteriorate significantly
FirstSun Capital Bancorp’s stock price of $39.61 implies a valuation ratio of 0.9x forward P/B. Dive into our free research report to see why there are better opportunities than FSUN.
Sixth Street Specialty Lending (TSLX)
Market Cap: $1.79 billion
Originally launched as TPG Specialty Lending before rebranding in 2020, Sixth Street Specialty Lending (NYSE: TSLX) is a business development company that provides customized financing solutions to middle-market companies across various industries.
Why Are We Out on TSLX?
- 1.2% annual revenue growth over the last two years was slower than its financials peers
- Earnings per share were flat over the last two years and fell short of the peer group average
At $18.93 per share, Sixth Street Specialty Lending trades at 9.7x forward P/E. To fully understand why you should be careful with TSLX, check out our full research report (it’s free).
Stocks We Like More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in 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 244% over the last five years (as of June 30, 2025).
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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
