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.

Sensata Technologies (ST)

Market Cap: $5.14 billion

Originally a temperature sensor control maker and a subsidiary of Texas Instruments for 60 years, Sensata Technology Holdings (NYSE: ST) is a leading supplier of analog sensors used in industrial and transportation applications, best known for its dominant position in the tire pressure monitoring systems in cars.

Why Are We Out on ST?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 4.8% annually over the last two years
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.9%
3. High input costs result in an inferior gross margin of 30.2% that must be offset through higher volumes

Sensata Technologies is trading at $35.22 per share, or 9.7x forward P/E. To fully understand why you should be careful with ST, check out our full research report (it’s free).

Chegg (CHGG)

Market Cap: $104.3 million

Started as a physical textbook rental service, Chegg (NYSE: CHGG) is now a digital platform addressing student pain points by providing study and academic assistance.

Why Do We Pass on CHGG?

1. Struggled with new customer acquisition as its services subscribers averaged 18.9% declines
2. Overall productivity fell over the last few years as its plummeting sales were accompanied by a decline in its EBITDA margin
3. Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable

Chegg’s stock price of $0.97 implies a valuation ratio of 2.4x forward EV/EBITDA. Read our free research report to see why you should think twice about including CHGG in your portfolio.

CTS (CTS)

Market Cap: $1.33 billion

With roots dating back to 1896 and a global manufacturing footprint, CTS (NYSE: CTS) designs and manufactures sensors, connectivity components, and actuators for aerospace, defense, industrial, medical, and transportation markets.

Why Do We Think Twice About CTS?

1. Annual sales declines of 3.3% for the past two years show its products and services struggled to connect with the market during this cycle
2. Earnings per share have contracted by 3.5% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Waning returns on capital imply its previous profit engines are losing steam

At $45.54 per share, CTS trades at 19.1x forward P/E. Dive into our free research report to see why there are better opportunities than CTS.

Stocks We Like More

Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.

The names generating the next wave of massive growth are right here in 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 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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.