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.

IPG Photonics (IPGP)

Market Cap: $5.03 billion

Both a designer and manufacturer of its products, IPG Photonics (NASDAQ: IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials.

Why Do We Steer Clear of IPGP?

1. Sales tumbled by 3.5% annually over the last five years, showing market trends are working against its favor during this cycle
2. Operating margin has declined over the last five years, and when paired with its track record of losses, suggests intense competition and a suboptimal cost structure
3. 18.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

IPG Photonics is trading at $119.10 per share, or 64.9x forward P/E. To fully understand why you should be careful with IPGP, check out our full research report (it’s free).

Fresh Del Monte Produce (FDP)

Market Cap: $1.99 billion

Translating to "of the mountain" in Spanish, Fresh Del Monte (NYSE: FDP) is a leader in providing high-quality, sustainably grown fresh fruits and vegetables.

Why Should You Sell FDP?

1. Products fail to spark excitement with consumers, as seen in its flat sales over the last three years
2. Estimated sales decline of 2.9% for the next 12 months implies an even more challenging demand environment
3. Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 8.8%

Fresh Del Monte Produce’s stock price of $41.96 implies a valuation ratio of 12.8x forward P/E. If you’re considering FDP for your portfolio, see our FREE research report to learn more.

Simpson (SSD)

Market Cap: $7.09 billion

Aiming to build safer and stronger buildings, Simpson (NYSE: SSD) designs and manufactures structural connectors, anchors, and other construction products.

Why Are We Wary of SSD?

1. Annual revenue growth of 2.7% over the last two years was below our standards for the industrials sector
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Eroding returns on capital suggest its historical profit centers are aging

At $171.40 per share, Simpson trades at 18.7x forward P/E. Dive into our free research report to see why there are better opportunities than SSD.

Stocks We Like More

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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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.