Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.

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.

Lovesac (LOVE)

Market Cap: $334.4 million

Known for its oversized, premium beanbags, Lovesac (NASDAQ: LOVE) is a specialty furniture brand selling modular furniture.

Why Does LOVE Worry Us?

1. Muted 6.4% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
2. Estimated sales growth of 1.4% for the next 12 months implies demand will slow from its two-year trend
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Lovesac’s stock price of $22 implies a valuation ratio of 14.3x forward price-to-earnings. If you’re considering LOVE for your portfolio, see our FREE research report to learn more.

Vail Resorts (MTN)

Market Cap: $5.86 billion

Founded by two Aspen, Colorado ski patrol guides, Vail Resorts (NYSE: MTN) is a mountain resort company offering luxury experiences in over 30 locations across the globe.

Why Are We Cautious About MTN?

1. Performance surrounding its skier visits has lagged its peers
2. Estimated sales growth of 4.3% for the next 12 months is soft and implies weaker demand
3. Incremental sales over the last five years were much less profitable as its earnings per share fell by 16.9% annually while its revenue grew

At $156.54 per share, Vail Resorts trades at 21.3x forward price-to-earnings. Read our free research report to see why you should think twice about including MTN in your portfolio.

AGCO (AGCO)

Market Cap: $7.30 billion

With a history that features both organic growth and acquisitions, AGCO (NYSE: AGCO) designs, manufactures, and sells agricultural machinery and related technology.

Why Do We Think AGCO Will Underperform?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 7.6 percentage points
3. Earnings per share fell by 40.8% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable

AGCO is trading at $98.03 per share, or 23.3x forward price-to-earnings. Check out our free in-depth research report to learn more about why AGCO doesn’t pass our bar.

Stocks We Like More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.