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.
America's Car-Mart (CRMT)
Market Cap: $105.7 million
With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ:CRMT) sells used cars to budget-conscious consumers.
Why Do We Think CRMT Will Underperform?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Earnings per share fell by 31.2% annually over the last three years while its revenue was flat, partly because it diluted shareholders
America's Car-Mart’s stock price of $12.75 implies a valuation ratio of 21.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including CRMT in your portfolio.
E.W. Scripps (SSP)
Market Cap: $340 million
Founded as a chain of daily newspapers, E.W. Scripps (NASDAQ:SSP) is a diversified media enterprise operating a range of local television stations, national networks, and digital media platforms.
Why Do We Avoid SSP?
- Annual revenue growth of 3% over the last five years was below our standards for the consumer discretionary sector
- Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
E.W. Scripps is trading at $3.72 per share, or 5.9x forward EV-to-EBITDA. If you’re considering SSP for your portfolio, see our FREE research report to learn more.
Timken (TKR)
Market Cap: $6.99 billion
Established after the founder noticed the difficulty freight wagons had making sharp turns, Timken (NYSE:TKR) is a provider of industrial parts used across various sectors.
Why Should You Sell TKR?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.4%
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
At $100.88 per share, Timken trades at 16.3x forward P/E. Check out our free in-depth research report to learn more about why TKR doesn’t pass our bar.
Stocks We Like More
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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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.