3 Small-Cap Stocks We Consider Risky

Are Small-Cap Stocks Worth the Risk?

Investing in small-cap companies can offer significant rewards, largely because these stocks are often overlooked by analysts, resulting in frequent pricing inefficiencies. However, many of these companies remain small, as their limited scale makes it challenging to build lasting competitive advantages and achieve substantial growth.

This inherent risk is exactly why we created StockStory—to help you distinguish between long-term winners and those less likely to succeed, so you can make more informed investment decisions. With that in mind, let’s examine three small-cap stocks we recommend steering clear of, along with some more promising alternatives.

TEGNA (TGNA)

Market Capitalization: $3.35 billion

TEGNA (NYSE:TGNA), which separated from Gannett in 2015, is a media organization that manages a portfolio of television stations and digital platforms, emphasizing local news and community-focused content.

Reasons to Be Cautious About TGNA

• Over the past five years, TEGNA’s annual revenue has declined by 1.6%, signaling challenges with its market strategy.
• Profitability has deteriorated, with earnings per share dropping by 6.5% annually—an even steeper decline than its revenue.
• Returns on capital have fallen from an already low base, suggesting that both past and current investments have failed to deliver meaningful improvements.

Currently, TEGNA trades at $20.64 per share, with a forward price-to-earnings ratio of 6.8.

GEO Group (GEO)

Market Capitalization: $1.89 billion

GEO Group (NYSE:GEO) operates secure facilities, processing centers, and reentry services for government agencies across the United States, Australia, and South Africa, managing around 81,000 beds in 100 locations worldwide.

Why We’re Wary of GEO

• Annual revenue growth has been sluggish at just 2.3% over the past five years, lagging behind other business services companies.
• Operating costs have increased relative to revenue, with the adjusted operating margin dropping by 6.3 percentage points in the last four years.
• Free cash flow margin has declined by 14.2 percentage points over five years, indicating the business is becoming more capital-intensive amid rising competition.

GEO Group is priced at $14.33 per share, equating to a forward P/E of 12.5.

Exponent (EXPO)

Market Capitalization: $3.54 billion

Exponent (NASDAQ:EXPO) is a consulting firm specializing in science and engineering, with more than 800 experts holding advanced degrees across over 90 technical fields. The company provides in-depth analysis and problem-solving services for clients in a variety of industries.

Why EXPO Fails to Impress

• Revenue growth has been modest, with a 3.9% annual increase over the past two years—trailing its business services peers.
• Free cash flow margin has contracted by 4.3 percentage points over five years, suggesting the company is using more capital to maintain its competitive edge.
• Declining returns on capital indicate that previous profit opportunities are diminishing.

Exponent’s shares are trading at $71.90, reflecting a forward P/E ratio of 31.1.

Our Preferred Stock Picks

Bonus: This Week’s Top 6 Stock Recommendations

The current market is quickly distinguishing high-quality stocks from overpriced ones, with AI-driven shifts impacting entire sectors unexpectedly. In such a rapidly changing environment, it takes more than just a list of solid companies to succeed.

Our AI-powered system identified Palantir before its 1,662% surge, AppLovin ahead of its 753% rally, and Nvidia prior to its 1,178% climb. Each week, it highlights six new stocks that meet the same rigorous criteria.

Past selections from 2020 include well-known names like Nvidia (up 1,326% from June 2020 to June 2025) and lesser-known companies such as Exlservice, which delivered a 354% five-year return.