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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Golden Entertainment (GDEN)
Market Cap: $724.9 million
Founded in 2001, Golden Entertainment (NASDAQ: GDEN) is a gaming company operating casinos, taverns, and distributed gaming platforms.
Why Do We Pass on GDEN?
- Products and services have few die-hard fans as sales have declined by 2.5% annually over the last five years
- Poor free cash flow margin of 4.3% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Golden Entertainment’s stock price of $27.68 implies a valuation ratio of 37.3x forward P/E. To fully understand why you should be careful with GDEN, check out our full research report (it’s free).
Perma-Fix (PESI)
Market Cap: $283.1 million
Tackling hazardous waste challenges since 1990, Perma-Fix (NASDAQ: PESI) provides environmental waste treatment services.
Why Should You Sell PESI?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 9.4% annually over the last five years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $15.30 per share, Perma-Fix trades at 480.3x forward P/E. Check out our free in-depth research report to learn more about why PESI doesn’t pass our bar.
Dave & Buster's (PLAY)
Market Cap: $668.3 million
Founded by a former game parlor and bar operator, Dave & Buster’s (NASDAQ: PLAY) operates a chain of arcades providing immersive entertainment experiences.
Why Should You Dump PLAY?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Dave & Buster's is trading at $19.28 per share, or 23.7x forward P/E. If you’re considering PLAY for your portfolio, see our FREE research report to learn more.
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 5 Strong Momentum Stocks for this week. 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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
