3 Small-Cap Stocks We Keep Off Our Radar

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 avoid and some other investments you should consider instead.

Domo (DOMO)

Market Cap: $173.4 million

Named for the Japanese word meaning "thank you very much," Domo (NASDAQ:DOMO) provides a cloud-based business intelligence platform that connects people with real-time data and insights across organizations.

Why Is DOMO Risky?

1. Average billings growth of 2% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
3. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low

Domo’s stock price of $3.85 implies a valuation ratio of 0.5x forward price-to-sales. Read our free research report to see why you should think twice about including DOMO in your portfolio.

Lumen (LUMN)

Market Cap: $8.74 billion

With approximately 350,000 route miles of fiber optic cable spanning North America and the Asia Pacific, Lumen Technologies (NYSE:LUMN) operates a vast fiber optic network that provides communications, cloud connectivity, security, and IT solutions to businesses and consumers.

Why Are We Out on LUMN?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 10% annually over the last five years
2. Sales were less profitable over the last five years as its earnings per share fell by 17.8% annually, worse than its revenue declines
3. Free cash flow margin shrank by 7.3 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

At $8.45 per share, Lumen trades at 0.8x forward price-to-sales. If you’re considering LUMN for your portfolio, see our FREE research report to learn more.

Centrus Energy (LEU)

Market Cap: $4.08 billion

Operating the only active U.S. facility licensed to produce high-assay low-enriched uranium (HALEU) for next-generation reactors, Centrus Energy (NYSE:LEU) supplies enriched uranium, the fissile component needed to produce fuel for nuclear power reactors.

Why Do We Think LEU Will Underperform?

1. Subscale operations are evident in its revenue base of $452.3 million, meaning it has fewer distribution channels than its larger rivals
2. Costly operations and weak unit economics result in an inferior gross margin of 32.5% that must be offset through higher production volumes
3. Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 37.8 percentage points

Centrus Energy is trading at $207.10 per share, or 46.2x forward P/E. Check out our free in-depth research report to learn more about why LEU doesn’t pass our bar.

Stocks We Like More

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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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.