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.

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.

Pegasystems (PEGA)

Market Cap: $8.52 billion

Founded by Alan Trefler in 1983, Pegasystems (NASDAQ: PEGA) offers a software-as-a-service platform to automate and optimize workflows in customer service and engagement.

Why Are We Cautious About PEGA?

1. 8.8% annual revenue growth over the last three years was slower than its software peers
2. Estimated sales decline of 2.2% for the next 12 months implies a challenging demand environment
3. Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment

At $98.29 per share, Pegasystems trades at 5.9x forward price-to-sales. If you’re considering PEGA for your portfolio, see our FREE research report to learn more.

Mister Car Wash (MCW)

Market Cap: $2.31 billion

Formerly known as Hotshine Holdings, Mister Car Wash (NYSE: MCW) offers car washes across the United States through its conveyorized service.

Why Are We Out on MCW?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
2. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

Mister Car Wash’s stock price of $7.12 implies a valuation ratio of 15.7x forward P/E. Read our free research report to see why you should think twice about including MCW in your portfolio.

Commercial Vehicle Group (CVGI)

Market Cap: $42.42 million

Formed from a partnership between two distinct companies, CVG (NASDAQ: CVGI) offers various components used in vehicles and systems used in warehouses.

Why Is CVGI Risky?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 2.8% annually over the last five years
2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Commercial Vehicle Group is trading at $1.28 per share, or 9.4x forward P/E. Check out our free in-depth research report to learn more about why CVGI doesn’t pass our bar.

High-Quality Stocks for All Market Conditions

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 Growth Stocks for this month. 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.