Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
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.
Pegasystems (PEGA)
Market Cap: $8.52 billion
Founded by Alan Trefler in 1983, Pegasystems (NASDAQ: PEGA) offers a software-as-a-service platform to automate and optimize workflows in customer service and engagement.
Why Are We Cautious About PEGA?
- 8.8% annual revenue growth over the last three years was slower than its software peers
- Estimated sales decline of 2.2% for the next 12 months implies a challenging demand environment
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
At $98.29 per share, Pegasystems trades at 5.9x forward price-to-sales. If you’re considering PEGA for your portfolio, see our FREE research report to learn more.
Mister Car Wash (MCW)
Market Cap: $2.31 billion
Formerly known as Hotshine Holdings, Mister Car Wash (NYSE: MCW) offers car washes across the United States through its conveyorized service.
Why Are We Out on MCW?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Mister Car Wash’s stock price of $7.12 implies a valuation ratio of 15.7x forward P/E. Read our free research report to see why you should think twice about including MCW in your portfolio.
Commercial Vehicle Group (CVGI)
Market Cap: $42.42 million
Formed from a partnership between two distinct companies, CVG (NASDAQ: CVGI) offers various components used in vehicles and systems used in warehouses.
Why Is CVGI Risky?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2.8% annually over the last five years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Commercial Vehicle Group is trading at $1.28 per share, or 9.4x forward P/E. Check out our free in-depth research report to learn more about why CVGI doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free.
