3 Small-Cap Stocks That Concern Us

3 Small-Cap Stocks That Concern Us

Petr Huřťák

Thu, February 12, 2026 at 1:35 PM GMT+9 3 min read

In this article:

MYRG

+0.52%

FA

-1.53%

FLYW

-0.98%

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.

The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Flywire (FLYW)

Market Cap: $1.36 billion

Initially created to solve the challenges of international student tuition payments, Flywire (NASDAQ:FLYW) provides specialized payment processing and software solutions that help educational institutions, healthcare systems, travel companies, and businesses manage complex payments.

Why Do We Think Twice About FLYW?

High servicing costs result in a relatively inferior gross margin of 61.3% that must be offset through increased usage

Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment

Operating margin expanded by 3.7 percentage points over the last year as it scaled and became more efficient

Flywire’s stock price of $11.13 implies a valuation ratio of 2.1x forward price-to-sales. To fully understand why you should be careful with FLYW, check out our full research report (it’s free).

MYR Group (MYRG)

Market Cap: $4.20 billion

Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ:MYRG) is a specialty contractor in the electrical construction industry.

Why Does MYRG Give Us Pause?

Flat backlog over the past two years has disappointed and shows fewer customers signed long-term contracts

Gross margin of 10.8% reflects its high production costs

Diminishing returns on capital suggest its earlier profit pools are drying up

MYR Group is trading at $269.74 per share, or 31.3x forward P/E. If you’re considering MYRG for your portfolio, see our FREE research report to learn more.

First Advantage (FA)

Market Cap: $1.91 billion

Processing approximately 100 million background checks annually across more than 200 countries and territories, First Advantage (NASDAQ:FA) provides employment background screening, identity verification, and compliance solutions to help companies manage hiring risks.

Why Does FA Fall Short?

Incremental sales over the last two years were much less profitable as its earnings per share fell by 4.6% annually while its revenue grew

Free cash flow margin dropped by 15.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up

Underwhelming 0.9% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up

 






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At $10.97 per share, First Advantage trades at 9.8x forward P/E. Check out our free in-depth research report to learn more about why FA doesn’t pass our bar.

Stocks We Like More

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

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.

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