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.

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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.

Etsy (ETSY)

Market Cap: $5.92 billion

Founded by a struggling amateur furniture maker Robert Kalin and his two friends, Etsy (NYSE: ETSY) is one of the world’s largest online marketplaces, focusing on handmade or vintage items.

Why Are We Cautious About ETSY?

1. Value proposition isn’t resonating strongly as its active buyers averaged 1.7% drops over the last two years
2. Estimated sales decline of 2.3% for the next 12 months implies a challenging demand environment
3. Performance over the past three years shows its incremental sales were less profitable as its earnings per share were flat

Etsy is trading at $62.10 per share, or 11.1x forward EV/EBITDA. If you’re considering ETSY for your portfolio, see our FREE research report to learn more.

RE/MAX (RMAX)

Market Cap: $199.2 million

Short for Real Estate Maximums, RE/MAX (NYSE: RMAX) operates a real estate franchise network spanning over 100 countries and territories.

Why Do We Steer Clear of RMAX?

1. Performance surrounding its agents has lagged its peers
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 9% annually
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

At $9.39 per share, RE/MAX trades at 0.7x forward price-to-sales. Check out our free in-depth research report to learn more about why RMAX doesn’t pass our bar.

Ameris Bancorp (ABCB)

Market Cap: $5.68 billion

Tracing its roots back to 1971 and expanding significantly through both organic growth and strategic acquisitions, Ameris Bancorp (NYSE: ABCB) is a financial holding company that provides a full range of banking services to retail and commercial customers across select markets in the southeastern United States.

Why Does ABCB Worry Us?

1. Muted 7.9% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
2. Estimated net interest income growth of 6.4% for the next 12 months is soft and implies weaker demand
3. Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 3.1% annually

Ameris Bancorp’s stock price of $84.75 implies a valuation ratio of 1.3x forward P/B. Read our free research report to see why you should think twice about including ABCB in your portfolio.

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