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. Check out our free in-depth research report to learn more about why LZB doesn’t pass our bar.
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. Read our free research report to see why you should think twice about including CWST in your portfolio.
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. Dive into our free research report to see why there are better opportunities than PESI.
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.
