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.
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.
PlayStudios (MYPS)
Market Cap: $120.1 million
Founded by a team of former gaming industry executives, PlayStudios (NASDAQ: MYPS) offers free-to-play digital casino games.
Why Do We Steer Clear of MYPS?
- Demand for its offerings was relatively low as its number of daily active users has underwhelmed
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Earnings per share have contracted by 12.6% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
At $0.97 per share, PlayStudios trades at 2.4x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than MYPS.
Dine Brands (DIN)
Market Cap: $375.6 million
Operating a franchise model, Dine Brands (NYSE: DIN) is a casual restaurant chain that owns the Applebee’s and IHOP banners.
Why Do We Avoid DIN?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 4.6 percentage points
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Dine Brands is trading at $24.42 per share, or 5x forward P/E. If you’re considering DIN for your portfolio, see our FREE research report to learn more.
MGP Ingredients (MGPI)
Market Cap: $531 million
Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ: MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry
Why Should You Sell MGPI?
- Annual revenue declines of 6% over the last three years indicate problems with its market positioning
- Sales are projected to tank by 15.8% over the next 12 months as its demand continues evaporating
- Operating profits fell over the last year as its sales dropped and it struggled to adjust its fixed costs
MGP Ingredients’s stock price of $25.41 implies a valuation ratio of 9.5x forward P/E. To fully understand why you should be careful with MGPI, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
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Don’t let fear keep you from great opportunities and take a look at 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).
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