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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Genesis Energy (GEL)
Market Cap: $2.18 billion
Operating a 64% stake in the Poseidon Pipeline, one of the Gulf of Mexico's largest crude oil pipelines, Genesis Energy (NYSE: GEL) provides midstream services like pipeline transportation, storage, and processing for crude oil and natural gas producers and refiners.
Why Should You Sell GEL?
- Sales tumbled by 2.2% annually over the last five years, showing market trends are working against its favor during this cycle
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 24.7%
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Genesis Energy’s stock price of $17.72 implies a valuation ratio of 8.7x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including GEL in your portfolio.
Littelfuse (LFUS)
Market Cap: $9.61 billion
The developer of the first blade-type automotive fuse, Littelfuse (NASDAQ: LFUS) provides electrical protection and control components for the automotive, industrial, electronics, and telecommunications industries.
Why Does LFUS Fall Short?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $382.84 per share, Littelfuse trades at 29.1x forward P/E. If you’re considering LFUS for your portfolio, see our FREE research report to learn more.
AerSale (ASLE)
Market Cap: $311.8 million
Providing a one-stop shop that integrates multiple services and product offerings, AerSale (NASDAQ: ASLE) delivers full-service support to mid-life commercial aircraft.
Why Are We Out on ASLE?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 31.4 percentage points
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
AerSale is trading at $6.61 per share, or 9.8x forward P/E. Check out our free in-depth research report to learn more about why ASLE doesn’t pass our bar.
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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.
