Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.

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.

Red Rock Resorts (RRR)

Market Cap: $3.71 billion

Founded in 1976, Red Rock Resorts (NASDAQ: RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.

Why Are We Out on RRR?

1. Lackluster 9% annual revenue growth over the last five years indicates the company is losing ground to competitors
2. Low free cash flow margin of 11.5% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate

Red Rock Resorts’s stock price of $62.70 implies a valuation ratio of 23.5x forward P/E. If you’re considering RRR for your portfolio, see our FREE research report to learn more.

Universal Technical Institute (UTI)

Market Cap: $1.41 billion

Founded in 1965, Universal Technical Institute (NYSE: UTI) is a leading provider of technical training programs, specializing in automotive, diesel, collision repair, motorcycle, and marine technicians.

Why Do We Think UTI Will Underperform?

1. Number of new students has disappointed over the past two years, indicating weak demand for its offerings
2. Projected 4.1 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
3. ROIC hasn’t moved, making investors question whether its recent investments can increase profitability

At $25.81 per share, Universal Technical Institute trades at 13.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including UTI in your portfolio.

OneMain (OMF)

Market Cap: $7.98 billion

Dating back to 1912 and formerly known as Springleaf, OneMain Holdings (NYSE: OMF) provides personal loans, auto financing, and credit cards to nonprime consumers who have limited access to traditional banking services.

Why Is OMF Not Exciting?

1. Annual revenue growth of 4.3% over the last five years was below our standards for the financials sector
2. Earnings growth underperformed the sector average over the last five years as its EPS grew by just 3.4% annually
3. Elevated debt-to-equity ratio of 6.6× suggests the firm is overleveraged and may struggle to secure additional financing

OneMain is trading at $67.75 per share, or 8.9x forward P/E. Check out our free in-depth research report to learn more about why OMF doesn’t pass our bar.

High-Quality Stocks for All Market Conditions

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. Check out 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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today.