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.
Norwegian Cruise Line (NCLH)
Market Cap: $8.7 billion
With amenities like a full go-kart race track built into its ships, Norwegian Cruise Line (NYSE: NCLH) is a premier global cruise company.
Why Are We Out on NCLH?
- Number of passenger cruise days has disappointed over the past two years, indicating weak demand for its offerings
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Norwegian Cruise Line’s stock price of $19.09 implies a valuation ratio of 7.4x forward P/E. To fully understand why you should be careful with NCLH, check out our full research report (it’s free for active Edge members).
Mister Car Wash (MCW)
Market Cap: $1.69 billion
Formerly known as Hotshine Holdings, Mister Car Wash (NYSE: MCW) offers car washes across the United States through its conveyorized service.
Why Should You Dump MCW?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Improving returns on capital suggest management is identifying more profitable investments
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Mister Car Wash is trading at $5.15 per share, or 11.3x forward P/E. Check out our free in-depth research report to learn more about why MCW doesn’t pass our bar.
Bel Fuse (BELFA)
Market Cap: $2.13 billion
Founded by 26-year-old Elliot Bernstein during the electronics boom after WW2, Bel Fuse (NASDAQ: BELF.A) provides electronic systems and devices to the telecommunications, networking, transportation, and industrial sectors.
Why Is BELFA Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.5% annually over the last two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
At $150.92 per share, Bel Fuse trades at 22.6x forward P/E. Read our free research report to see why you should think twice about including BELFA in your portfolio.
High-Quality Stocks for All Market Conditions
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 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. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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