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.
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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Hilton Grand Vacations (HGV)
Market Cap: $4.08 billion
Spun off from Hilton Worldwide in 2017, Hilton Grand Vacations (NYSE: HGV) is a global timeshare company that provides travel experiences for its customers through its timeshare resorts and club membership programs.
Why Do We Pass on HGV?
- Number of members has disappointed over the past two years, indicating weak demand for its offerings
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- High net-debt-to-EBITDA ratio of 11× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Hilton Grand Vacations’s stock price of $47.64 implies a valuation ratio of 11.3x forward P/E. Dive into our free research report to see why there are better opportunities than HGV.
Methode Electronics (MEI)
Market Cap: $321.9 million
Founded in 1946, Methode Electronics (NYSE: MEI) is a global supplier of custom-engineered solutions for Original Equipment Manufacturers (OEMs).
Why Do We Think MEI Will Underperform?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $9.08 per share, Methode Electronics trades at 147.2x forward P/E. If you’re considering MEI for your portfolio, see our FREE research report to learn more.
Navient (NAVI)
Market Cap: $964.8 million
Spun off from Sallie Mae in 2014 to handle the company's loan servicing and collection operations, Navient (NASDAQ: NAVI) provides education loan servicing and business processing solutions that help manage federal student loans, private education loans, and government services.
Why Should You Sell NAVI?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 19.2% annually over the last five years
- Earnings per share have dipped by 16.1% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Debt-to-equity ratio of 19.3× is concerningly high, indicating excessive leverage that could limit financial flexibility
Navient is trading at $10.07 per share, or 14.1x forward P/E. Check out our free in-depth research report to learn more about why NAVI doesn’t pass our bar.
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 9 Market-Beating Stocks. 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today.
