Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Lovesac (LOVE)
Market Cap: $204.1 million
Known for its oversized, premium beanbags, Lovesac (NASDAQ: LOVE) is a specialty furniture brand selling modular furniture.
Why Do We Think LOVE Will Underperform?
- Lackluster 1.6% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Lovesac’s stock price of $13.97 implies a valuation ratio of 53.7x forward P/E. To fully understand why you should be careful with LOVE, check out our full research report (it’s free for active Edge members).
Heartland Express (HTLD)
Market Cap: $702.4 million
Founded by the son of a trucker, Heartland Express (NASDAQ: HTLD) offers full-truckload deliveries across the United States and Mexico.
Why Do We Avoid HTLD?
- Sales tumbled by 14.2% annually over the last two years, showing market trends are working against its favor during this cycle
- 12.7 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
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Heartland Express is trading at $9.06 per share, or 10.1x forward EV-to-EBITDA. If you’re considering HTLD for your portfolio, see our FREE research report to learn more.
HA Sustainable Infrastructure Capital (HASI)
Market Cap: $4.21 billion
With a proprietary "CarbonCount" metric that quantifies the environmental impact of each dollar invested, HA Sustainable Infrastructure Capital (NYSE: HASI) is an investment firm that finances and develops climate-positive infrastructure projects across renewable energy, energy efficiency, and ecological restoration.
Why Is HASI Not Exciting?
- Below-average return on equity indicates management struggled to find compelling investment opportunities
At $33.43 per share, HA Sustainable Infrastructure Capital trades at 11.8x forward P/E. Read our free research report to see why you should think twice about including HASI in your portfolio.
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in 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 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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.
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