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.
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 avoid and some other investments you should consider instead.
Mission Produce (AVO)
Market Cap: $1.03 billion
Founded in 1983 in California, Mission Produce (NASDAQ: AVO) grows, packages, and distributes avocados.
Why Do We Think Twice About AVO?
- Subscale operations are evident in its revenue base of $1.34 billion, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 11.2% is below its competitors, leaving less money to invest in areas like marketing and production facilities
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Mission Produce’s stock price of $11.61 implies a valuation ratio of 17.6x forward P/E. If you’re considering AVO for your portfolio, see our FREE research report to learn more.
Cogent (CCOI)
Market Cap: $458.2 million
Operating a massive network spanning 20,000 miles of fiber optic cable and connecting to over 3,200 buildings worldwide, Cogent Communications (NASDAQ: CCOI) provides high-speed Internet access, private network services, and data center colocation to businesses and bandwidth-intensive organizations across 54 countries.
Why Do We Avoid CCOI?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.6% annually over the last two years
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $9.43 per share, Cogent trades at 8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including CCOI in your portfolio.
PROG (PRG)
Market Cap: $1.23 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 Do We Think PRG Will Underperform?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Sales over the last five years were less profitable as its earnings per share fell by 4.3% annually while its revenue was flat
- Tangible book value per share tumbled by 35% annually over the last five years, showing financials sector trends are working against it during this cycle
PROG is trading at $31.67 per share, or 6.3x forward P/E. Dive into our free research report to see why there are better opportunities than PRG.
High-Quality Stocks for All Market Conditions
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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-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
