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.
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.
Redfin (RDFN)
Market Cap: $1.43 billion
Founded by a former medical school student, electrical engineer, and Amazon data engineer, Redfin (NASDAQ: RDFN) is a real estate company offering brokerage services through an online platform.
Why Do We Avoid RDFN?
- Number of brokerage transactions has disappointed over the past two years, indicating weak demand for its offerings
- Earnings per share fell by 9.7% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Negative earnings profile makes it challenging to secure favorable financing terms from lenders
Redfin is trading at $11.30 per share, or 86.7x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including RDFN in your portfolio.
MarineMax (HZO)
Market Cap: $494.9 million
Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE: HZO) sells boats, yachts, and other marine products.
Why Are We Out on HZO?
- Recent store closures and weak same-store sales point to soft demand and an operational restructuring
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $23.06 per share, MarineMax trades at 8.8x forward P/E. To fully understand why you should be careful with HZO, check out our full research report (it’s free).
Carter's (CRI)
Market Cap: $936.3 million
Rumored to sell more than 10 products for every child born in the United States, Carter's (NYSE: CRI) is an American designer and marketer of children's apparel.
Why Do We Steer Clear of CRI?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Carter’s stock price of $25.70 implies a valuation ratio of 9.8x forward P/E. If you’re considering CRI for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Trump’s April 2024 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out 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 183% over the last five years (as of March 31st 2025).
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. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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