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.
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 pass on and some alternatives you should look into instead.
Mayville Engineering (MEC)
Market Cap: $419.2 million
Originally founded solely on tool and die manufacturing, Mayville Engineering Company (NYSE:MEC) specializes in metal fabrication, tube bending, and welding to be used in various industries.
Why Are We Out on MEC?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.7% annually over the last two years
- High input costs result in an inferior gross margin of 12.2% that must be offset through higher volumes
- Earnings per share fell by 17% annually over the last five years while its revenue grew, partly because it diluted shareholders
Mayville Engineering is trading at $16.46 per share, or 23.6x forward P/E. Read our free research report to see why you should think twice about including MEC in your portfolio.
Selective Insurance Group (SIGI)
Market Cap: $5.10 billion
Founded in 1926 during the early days of automobile insurance, Selective Insurance Group (NASDAQ:SIGI) is a property and casualty insurance company that sells commercial, personal, and excess and surplus lines insurance products through independent agents.
Why Does SIGI Fall Short?
- Estimated sales decline of 1.3% for the next 12 months implies a challenging demand environment
- Efficiency has decreased over the last five years as its pre-tax profit margin fell by 5.1 percentage points
- Annual earnings per share growth of 4.3% underperformed its revenue over the last five years, showing its incremental sales were less profitable
At $85.62 per share, Selective Insurance Group trades at 1.4x forward P/B. Dive into our free research report to see why there are better opportunities than SIGI.
Albertsons (ACI)
Market Cap: $5.70 billion
With over 20 well-known grocery banners spanning 34 states, Albertsons (NYSE:ACI) operates food and drug retail stores across the US, offering groceries, pharmacy services, and own-brand products under banners like Safeway, Jewel-Osco, and Vons.
Why Is ACI Risky?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Gross margin of 27.3% is below its competitors, leaving less money for marketing and promotions
- Operating margin of 1.3% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
Albertsons’s stock price of $11.74 implies a valuation ratio of 6.6x forward P/E. If you’re considering ACI for your portfolio, see our FREE research report to learn more.
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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-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.