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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
EnerSys (ENS)
Market Cap: $5.84 billion
Supplying batteries that power equipment as big as mining rigs, EnerSys (NYSE: ENS) manufactures various kinds of batteries for a range of industries.
Why Does ENS Worry Us?
- Declining unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Anticipated sales growth of 1.6% for the next year implies demand will be shaky
- Gross margin of 26.1% reflects its high production costs
EnerSys’s stock price of $158.94 implies a valuation ratio of 14.1x forward P/E. Dive into our free research report to see why there are better opportunities than ENS.
Scorpio Tankers (STNG)
Market Cap: $2.58 billion
Operating one of the youngest fleets in the industry, Scorpio Tankers (NYSE: STNG) is an international provider of marine transportation services, specializing in the shipment of refined petroleum.
Why Do We Think Twice About STNG?
- Number of total vessels has disappointed over the past two years, indicating weak demand for its offerings
- Anticipated sales growth of 4.5% for the next year implies demand will be shaky
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
Scorpio Tankers is trading at $55.12 per share, or 9.6x forward P/E. Check out our free in-depth research report to learn more about why STNG doesn’t pass our bar.
LGI Homes (LGIH)
Market Cap: $1.23 billion
Based in Texas, LGI Homes (NASDAQ: LGIH) is a homebuilding company specializing in constructing affordable, entry-level single-family homes in desirable communities across the United States.
Why Should You Dump LGIH?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 10.4% decline in its backlog
- Eroding returns on capital suggest its historical profit centers are aging
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $53.18 per share, LGI Homes trades at 12.1x forward P/E. Read our free research report to see why you should think twice about including LGIH in your portfolio.
High-Quality Stocks for All Market Conditions
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 6 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).
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