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.

LKQ (LKQ)

Market Cap: $6.62 billion

A global distributor of vehicle parts and accessories, LKQ (NASDAQ: LKQ) offers its customers a comprehensive selection of high-quality, affordably priced automobile products.

Why Are We Out on LKQ?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Free cash flow margin is anticipated to expand by 1.2 percentage points over the next year, providing additional flexibility for investments and share buybacks/dividends
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $26.78 per share, LKQ trades at 8.6x forward P/E. To fully understand why you should be careful with LKQ, check out our full research report (it’s free).

Knowles (KN)

Market Cap: $3.38 billion

With roots dating back to 1946 and a focus on components that must perform flawlessly in critical situations, Knowles (NYSE: KN) designs and manufactures specialized electronic components like high-performance capacitors, microphones, and speakers for medical technology, defense, and industrial applications.

Why Do We Steer Clear of KN?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.2% annually over the last five years
2. Smaller revenue base of $614.1 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
3. Earnings per share lagged its peers over the last five years as they only grew by 5.2% annually

Knowles is trading at $41.22 per share, or 29.4x forward P/E. Dive into our free research report to see why there are better opportunities than KN.

Avantor (AVTR)

Market Cap: $6.60 billion

With roots dating back to 1904 and embedded in virtually every stage of scientific research and production, Avantor (NYSE: AVTR) provides mission-critical products, materials, and services to customers in biopharma, healthcare, education, and advanced technology industries.

Why Do We Avoid AVTR?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Projected sales for the next 12 months are flat and suggest demand will be subdued
3. Earnings per share fell by 4.5% annually over the last five years while its revenue was flat, showing each sale was less profitable

Avantor’s stock price of $10.08 implies a valuation ratio of 11.9x forward P/E. If you’re considering AVTR for your portfolio, see our FREE research report to learn 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 Kadant (+351% five-year return). Find your next big winner with StockStory today.