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.
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. That said, here are three small-cap stocks to pass on and some alternatives you should look into instead.
Bark (BARK)
Market Cap: $86.63 million
Making a name for itself with the BarkBox, Bark (NYSE:BARK) specializes in subscription-based, personalized pet products.
Why Do We Pass on BARK?
- Annual revenue declines of 2.5% over the last five years indicate problems with its market positioning
- Cash-burning history makes us doubt the long-term viability of its business model
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Bark is trading at $9.48 per share, or 10.1x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than BARK.
Baldwin Insurance Group (BWIN)
Market Cap: $2.87 billion
Rebranded from BRP Group in May 2024, Baldwin Insurance Group (NASDAQ:BWIN) is an independent insurance distribution company that provides tailored insurance, risk management, and employee benefits solutions to businesses and individuals.
Why Do We Think Twice About BWIN?
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 8.2 percentage points
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Baldwin Insurance Group’s stock price of $29.62 implies a valuation ratio of 12.9x forward P/E. If you’re considering BWIN for your portfolio, see our FREE research report to learn more.
LendingTree (TREE)
Market Cap: $376.5 million
Using the same comparison model that revolutionized travel booking, LendingTree (NASDAQ:TREE) operates an online platform that connects consumers with financial service providers across mortgages, personal loans, credit cards, insurance, and other financial products.
Why Does TREE Give Us Pause?
- Estimated sales growth of 6.9% for the next 12 months implies demand will slow from its three-year trend
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
- Free cash flow margin has stayed in place over the last few years
At $26.83 per share, LendingTree trades at 4.4x forward EV/EBITDA. Check out our free in-depth research report to learn more about why TREE doesn’t pass our bar.
Stocks We Like More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
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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.