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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Camping World (CWH)
Market Cap: $290.4 million
Founded in 1966 as a single recreational vehicle (RV) dealership, Camping World (NYSE:CWH) still sells RVs along with boats and general merchandise for outdoor activities.
Why Do We Steer Clear of CWH?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Earnings per share decreased by more than its revenue over the last three years, partly because it diluted shareholders
- High net-debt-to-EBITDA ratio of 8× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Camping World is trading at $4.56 per share, or 7.6x forward P/E. Check out our free in-depth research report to learn more about why CWH doesn’t pass our bar.
Gibraltar (ROCK)
Market Cap: $1.20 billion
Gibraltar (NASDAQ:ROCK) makes renewable energy, agriculture technology and infrastructure products. Its mission statement is to make everyday living more sustainable.
Why Does ROCK Give Us Pause?
- Muted 3.8% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Earnings per share have dipped by 9.3% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $40.33 per share, Gibraltar trades at 9.2x forward P/E. Read our free research report to see why you should think twice about including ROCK in your portfolio.
LGI Homes (LGIH)
Market Cap: $1.08 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 Do We Pass on LGIH?
- Annual sales declines of 10.4% for the past five years show its products and services struggled to connect with the market during this cycle
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
LGI Homes’s stock price of $47.56 implies a valuation ratio of 15.9x forward P/E. If you’re considering LGIH for your portfolio, see our FREE research report to learn more.
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-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.