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.

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.

Accel Entertainment (ACEL)

Market Cap: $918.5 million

Established in Illinois, Accel Entertainment (NYSE: ACEL) is a provider of electronic gaming machines and interactive amusement terminals to bars and entertainment venues.

Why Do We Steer Clear of ACEL?

1. Sluggish trends in its video gaming terminals sold suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Free cash flow margin is on track to jump by 1.1 percentage points next year, meaning the company will have more resources to pursue growth initiatives, repurchase shares, or pay dividends
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Accel Entertainment is trading at $10.92 per share, or 12.3x forward P/E. Read our free research report to see why you should think twice about including ACEL in your portfolio.

Amentum (AMTM)

Market Cap: $6.52 billion

With operations spanning approximately 80 countries and a workforce of specialized engineers and technical experts, Amentum Holdings (NYSE: AMTM) provides advanced engineering and technology solutions to U.S. government agencies, allied governments, and commercial enterprises across defense, energy, and space sectors.

Why Do We Think Twice About AMTM?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.6% over the last two years was below our standards for the business services sector
2. Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
3. Incremental sales over the last three years were much less profitable as its earnings per share fell by 41.3% annually while its revenue grew

At $26.73 per share, Amentum trades at 10.9x forward P/E. Dive into our free research report to see why there are better opportunities than AMTM.

Enterprise Financial Services (EFSC)

Market Cap: $2.00 billion

Starting as a single bank in Missouri in 1988 and expanding through strategic growth, Enterprise Financial Services (NASDAQ: EFSC) is a financial holding company that offers banking, lending, and wealth management services to businesses and individuals across seven states.

Why Are We Wary of EFSC?

1. Sales trends were unexciting over the last two years as its 5.7% annual growth was below the typical banking company
2. Net interest margin shrank by 29.7 basis points (100 basis points = 1 percentage point) over the last two years, suggesting the profitability of its loan book is decreasing or the market is becoming more competitive
3. Performance over the past two years shows its incremental sales were less profitable, as its 1.1% annual earnings per share growth trailed its revenue gains

Enterprise Financial Services’s stock price of $54.40 implies a valuation ratio of 0.9x forward P/B. To fully understand why you should be careful with EFSC, check out our full research report (it’s free).

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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.