Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
F&G Annuities & Life (FG)
Market Cap: $3.57 billion
Founded in 1959 and serving approximately 677,000 policyholders who rely on its financial protection products, F&G Annuities & Life (NYSE: FG) provides fixed annuities, life insurance, and pension risk transfer solutions to retail and institutional clients.
Why Are We Hesitant About FG?
- Day-to-day expenses have swelled relative to revenue over the last four years as its pre-tax profit margin fell by 21.6 percentage points
- Book value per share tumbled by 4.6% annually over the last four years, showing insurance sector trends are working against its favor during this cycle
- Low return on equity reflects management’s struggle to allocate funds effectively
At $26.76 per share, F&G Annuities & Life trades at 6.4x forward P/E. Read our free research report to see why you should think twice about including FG in your portfolio.
PROG (PRG)
Market Cap: $1.22 billion
Evolving from its origins as Aaron's, Inc. before rebranding in 2020, PROG Holdings (NYSE: PRG) provides alternative payment solutions including lease-to-own options and second-look credit products for consumers who may not qualify for traditional financing.
Why Are We Out on PRG?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Earnings per share fell by 5.7% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Muted 3.8% annual tangible book value per share growth over the last five years shows its capital generation lagged behind its financials peers
PROG’s stock price of $30.38 implies a valuation ratio of 7x forward P/E. Dive into our free research report to see why there are better opportunities than PRG.
AutoNation (AN)
Market Cap: $6.81 billion
With a vast network of over 300 locations strategically concentrated in America's Sunbelt region, AutoNation (NYSE: AN) operates one of America's largest networks of automotive dealerships, selling new and used vehicles, parts, and services across multiple brands.
Why Do We Avoid AN?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 17.9%
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
AutoNation is trading at $201.54 per share, or 9.2x forward P/E. Check out our free in-depth research report to learn more about why AN doesn’t pass our bar.
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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.
