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.

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.

Leslie's (LESL)

Market Cap: $134.9 million

Named after founder Philip Leslie, who established the company in 1963, Leslie’s (NASDAQ: LESL) is a retailer that sells pool and spa supplies, equipment, and maintenance services.

Why Should You Dump LESL?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Earnings per share have dipped by 42.7% annually over the past four years, which is concerning because stock prices follow EPS over the long term
3. High net-debt-to-EBITDA ratio of 12× increases the risk of forced asset sales or dilutive financing if operational performance weakens

Leslie’s stock price of $0.73 implies a valuation ratio of 10.3x forward P/E. Check out our free in-depth research report to learn more about why LESL doesn’t pass our bar.

Sinclair (SBGI)

Market Cap: $892.6 million

With over 2,400 hours of local news produced weekly and 640 broadcast channels reaching millions of American homes, Sinclair (NASDAQ: SBGI) operates a network of 185 local television stations across 86 U.S. markets, producing news programming and distributing content from major networks.

Why Do We Pass on SBGI?

1. Annual sales declines of 7.2% for the past five years show its products and services struggled to connect with the market during this cycle
2. Forecasted revenue decline of 9.2% for the upcoming 12 months implies demand will fall off a cliff
3. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 25.1% annually

Sinclair is trading at $13.22 per share, or 2.1x forward EV-to-EBITDA. If you’re considering SBGI for your portfolio, see our FREE research report to learn more.

Polaris (PII)

Market Cap: $2.29 billion

Founded in 1954, Polaris (NYSE: PII) designs and manufactures high-performance off-road vehicles, snowmobiles, and motorcycles.

Why Do We Think PII Will Underperform?

1. Annual sales declines of 11.6% for the past two years show its products and services struggled to connect with the market
2. Sales over the last five years were less profitable as its earnings per share fell by 17.2% annually while its revenue was flat
3. Eroding returns on capital suggest its historical profit centers are aging

At $41 per share, Polaris trades at 27.2x forward P/E. Read our free research report to see why you should think twice about including PII in your portfolio.

High-Quality Stocks for All Market Conditions

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

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