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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Cal-Maine (CALM)
Market Cap: $3.40 billion
Known for brands such as Egg-Land’s Best and Land O’ Lakes, Cal-Maine (NASDAQ:CALM) produces, packages, and distributes eggs.
Why Is CALM Not Exciting?
- Annual revenue declines of 2.5% over the last three years indicate problems with its market positioning
- Sales were less profitable over the last three years as its earnings per share fell by 25.4% annually, worse than its revenue declines
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 13.7 percentage points
At $72.57 per share, Cal-Maine trades at 51x forward P/E. Read our free research report to see why you should think twice about including CALM in your portfolio.
Meritage Homes (MTH)
Market Cap: $4.19 billion
Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE:MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.
Why Are We Bearish on MTH?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 27.6% declines over the past two years
- Earnings per share have contracted by 7.7% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Eroding returns on capital suggest its historical profit centers are aging
Meritage Homes is trading at $64.37 per share, or 11.7x forward P/E. Check out our free in-depth research report to learn more about why MTH doesn’t pass our bar.
LeMaitre (LMAT)
Market Cap: $1.81 billion
Founded in 1983 and named after a pioneering vascular surgeon, LeMaitre Vascular (NASDAQGM:LMAT) develops and manufactures specialized medical devices used by vascular surgeons to treat peripheral vascular disease and other circulatory conditions.
Why Do We Think Twice About LMAT?
- Modest revenue base of $262.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies
LeMaitre’s stock price of $79.13 implies a valuation ratio of 25.8x forward P/E. If you’re considering LMAT for your portfolio, see our FREE research report to learn more.
Stocks We Like More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
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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.