Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
iHeartMedia (IHRT)
Market Cap: $618 million
Occasionally featuring celebrity hosts like Ryan Seacrest on its shows, iHeartMedia (NASDAQ: IHRT) is a leading multimedia company renowned for its extensive network of radio stations, digital platforms, and live events across the globe.
Why Do We Steer Clear of IHRT?
- 6.5% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- 8× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
iHeartMedia is trading at $4.44 per share, or 7.9x forward EV-to-EBITDA. If you’re considering IHRT for your portfolio, see our FREE research report to learn more.
WEBTOON (WBTN)
Market Cap: $1.57 billion
Pioneering a vertical-scrolling format optimized for mobile devices, WEBTOON Entertainment (NASDAQ: WBTN) operates a global platform where creators publish serialized web-comics and web-novels that users can read in bite-sized episodes.
Why Are We Cautious About WBTN?
- Number of monthly active users has disappointed over the past two years, indicating weak demand for its offerings
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 73.5% annually while its revenue grew
- Poor free cash flow margin of -0.6% for the last four years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
WEBTOON’s stock price of $11.47 implies a valuation ratio of 104.7x forward P/E. Check out our free in-depth research report to learn more about why WBTN doesn’t pass our bar.
Seacoast Banking (SBCF)
Market Cap: $3.01 billion
Founded during the Florida land boom of 1926 and surviving the Great Depression, Seacoast Banking Corporation of Florida (NASDAQ: SBCF) is a financial holding company that provides commercial and retail banking, wealth management, and mortgage services throughout Florida.
Why Are We Wary of SBCF?
- Inferior net interest margin of 3.5% means it must compensate for lower profitability through increased loan originations
- Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 1.5% annually over the last five years
At $33.27 per share, Seacoast Banking trades at 1.2x forward P/B. To fully understand why you should be careful with SBCF, 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 (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
