Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.

These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here are three small-cap stocks to pass on and some alternatives you should look into instead.

Monro (MNRO)

Market cap: $354.3 million

Started as a single location in Rochester, New York, Monro (NASDAQ: MNRO) provides common auto services such as brake repairs, tire replacements, and oil changes.

Why Do We Steer Clear of MNRO?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Earnings per share have contracted by 27.7% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
3. 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Monro is trading at $11.31 per share, or 10.4x forward EV-to-EBITDA. If you’re considering MNRO for your portfolio, see our FREE research report to learn more.

Energizer (ENR)

Market cap: $1.68 billion

Masterminds behind the viral Energizer Bunny mascot, Energizer (NYSE: ENR) is one of the world's largest manufacturers of batteries.

Why Are We Out on ENR?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Estimated sales for the next 12 months are flat and imply a softer demand environment
3. High net-debt-to-EBITDA ratio of 5× could force the company to raise capital on unfavorable terms if market conditions deteriorate

Energizer’s stock price of $24.46 implies a valuation ratio of 7.7x forward P/E. To fully understand why you should be careful with ENR, check out our full research report (it’s free).

THOR Industries (THO)

Market cap: $4.25 billion

Created through the acquisition and merger of various RV manufacturers, THOR Industries manufactures and sells a range of recreational vehicles, including motorhomes and travel trailers, catering to consumers seeking the freedom and comfort of the RV lifestyle.

Why Should You Sell THO?

1. Sales tumbled by 4.8% annually over the last five years, showing market trends are working against it during this cycle
2. Sales were less profitable over the last five years as its earnings per share fell by 22.1% annually, worse than its revenue declines
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $82.29 per share, THOR Industries trades at 23.2x forward P/E. Read our free research report to see why you should think twice about including THO in your portfolio.

Stocks we like more

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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.