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.

Floor And Decor (FND)

Market Cap: $8.12 billion

Operating large, warehouse-style stores, Floor & Decor (NYSE: FND) is a specialty retailer that specializes in hard flooring surfaces for the home such as tiles, hardwood, stone, and laminates.

Why Should You Sell FND?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 8.3% annually
3. ROIC of 8.8% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

Floor And Decor is trading at $75.28 per share, or 38.8x forward P/E. Read our free research report to see why you should think twice about including FND in your portfolio.

Lithia (LAD)

Market Cap: $8.08 billion

With a strong presence in the Western US, Lithia Motors (NYSE: LAD) sells a wide range of vehicles, including new and used cars, trucks, SUVs, and luxury vehicles from various manufacturers.

Why Are We Wary of LAD?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 15.6%
3. 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Lithia’s stock price of $336.50 implies a valuation ratio of 9.2x forward P/E. To fully understand why you should be careful with LAD, check out our full research report (it’s free).

Bank of Hawaii (BOH)

Market Cap: $2.81 billion

Founded in 1897 as a financial anchor for the newly annexed Hawaiian territory, Bank of Hawaii (NYSE: BOH) is a financial institution providing banking, investment, and insurance services primarily to customers in Hawaii, Guam, and other Pacific Islands.

Why Do We Avoid BOH?

1. Flat net interest income over the last five years suggest it must find different ways to grow during this cycle
2. Net interest margin of 2.3% reflects its high servicing and capital costs
3. Earnings per share were flat over the last five years and fell short of the peer group average

At $69.89 per share, Bank of Hawaii trades at 1.9x forward P/B. Dive into our free research report to see why there are better opportunities than BOH.

Stocks We Like More

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. Check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.