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.

The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

AGCO (AGCO)

Market Cap: $7.88 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 revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 46.7% annually
3. Eroding returns on capital suggest its historical profit centers are aging

AGCO’s stock price of $105.71 implies a valuation ratio of 22.3x forward P/E. If you’re considering AGCO for your portfolio, see our FREE research report to learn more.

Vontier (VNT)

Market Cap: $5.45 billion

A spin-off of a spin-off, Vontier (NYSE: VNT) provides electronic products and systems to the transportation, automotive, and manufacturing sectors.

Why Are We Out on VNT?

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. Free cash flow margin dropped by 14.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Waning returns on capital imply its previous profit engines are losing steam

Vontier is trading at $36.83 per share, or 11.6x forward P/E. Check out our free in-depth research report to learn more about why VNT doesn’t pass our bar.

Arrow Electronics (ARW)

Market Cap: $6.26 billion

Founded as a single retail store, Arrow Electronics (NYSE: ARW) provides electronic components and enterprise computing solutions to businesses globally.

Why Do We Avoid ARW?

1. Flat sales over the last five years suggest it must find different ways to grow during this cycle
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $120.59 per share, Arrow Electronics trades at 10.3x forward P/E. To fully understand why you should be careful with ARW, check out our full research report (it’s free).

Stocks We Like More

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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 176% over the last five years.

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free.