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.
La-Z-Boy (LZB)
Market Cap: $1.61 billion
The prized possession of every mancave, La-Z-Boy (NYSE:LZB) is a furniture company specializing in recliners, sofas, and seats.
Why Are We Out on LZB?
-
Products and services aren't resonating with the market as its revenue declined by 8% annually over the last two years
-
Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.8%
-
Diminishing returns on capital suggest its earlier profit pools are drying up
La-Z-Boy is trading at $38.78 per share, or 11.7x forward price-to-earnings. Read our free research report to see why you should think twice about including LZB in your portfolio, it’s free .
Casella Waste Systems (CWST)
Market Cap: $7.02 billion
Starting with the founder picking up garbage with a pickup truck he purchased using savings from high school, Casella (NASDAQ:CWST) offers waste management services for businesses, residents, and the government.
Why Do We Think Twice About CWST?
-
Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
-
Issuance of new shares over the last two years caused its earnings per share to fall by 10.1% annually while its revenue grew
-
Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Casella Waste Systems’s stock price of $111.44 implies a valuation ratio of 109.9x forward price-to-earnings. Check out our free in-depth research report to learn more about why CWST doesn’t pass our bar .
Perma-Fix (PESI)
Market Cap: $138.6 million
Tackling hazardous waste challenges since 1990, Perma-Fix (NASDAQ:PESI) provides environmental waste treatment services.
Why Do We Think PESI Will Underperform?
-
Customers postponed purchases of its products and services this cycle as its revenue declined by 4.3% annually over the last five years
-
Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
-
Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $7.26 per share, Perma-Fix trades at 1.5x forward price-to-sales. To fully understand why you should be careful with PESI, check out our full research report (it’s free) .
Stocks We Like More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month . This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free .
