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.

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 pass on and some alternatives you should look into instead.

Helios (HLIO)

Market Cap: $2.59 billion

Founded on the principle of treating others as one wants to be treated, Helios (NYSE: HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.

Why Do We Pass on HLIO?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Efficiency has decreased over the last five years as its operating margin fell by 8.4 percentage points
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Helios’s stock price of $78.39 implies a valuation ratio of 26.7x forward P/E. If you’re considering HLIO for your portfolio, see our FREE research report to learn more.

Ibotta (IBTA)

Market Cap: $638 million

Originally launched as a way to make grocery shopping more rewarding for budget-conscious consumers, Ibotta (NYSE: IBTA) is a mobile shopping app that allows consumers to earn cash back on everyday purchases by completing tasks and submitting receipts.

Why Are We Hesitant About IBTA?

1. 1.2% annual revenue growth over the last two years was slower than its business services peers
2. Modest revenue base of $340.3 million gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Earnings per share have dipped by 35.2% annually over the past one years, which is concerning because stock prices follow EPS over the long term

Ibotta is trading at $27.38 per share, or 16.2x forward P/E. Read our free research report to see why you should think twice about including IBTA in your portfolio.

ePlus (PLUS)

Market Cap: $2.31 billion

Starting as a financing company in 1990 before evolving into a full-service technology provider, ePlus (NASDAQ: PLUS) provides comprehensive IT solutions, professional services, and financing options to help organizations optimize their technology infrastructure and supply chain processes.

Why Is PLUS Not Exciting?

1. Sales trends were unexciting over the last two years as its 4.8% annual growth was below the typical business services company
2. Incremental sales over the last two years were less profitable as its 3.2% annual earnings per share growth lagged its revenue gains
3. 2.5 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $89.00 per share, ePlus trades at 16.7x forward P/E. To fully understand why you should be careful with PLUS, check out our full research report (it’s free).

Stocks We Like 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-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.