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.
Acushnet (GOLF)
Market Cap: $5.05 billion
Producer of the acclaimed Titleist Pro V1 golf ball, Acushnet (NYSE:GOLF) is a design and manufacturing company specializing in performance-driven golf products.
Why Do We Avoid GOLF?
- Lackluster 5.1% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Free cash flow margin is projected to show no improvement next year
- ROIC hasn’t moved, making investors question whether its recent investments can increase profitability
Acushnet’s stock price of $86.40 implies a valuation ratio of 20.5x forward P/E. Read our free research report to see why you should think twice about including GOLF in your portfolio.
Herc (HRI)
Market Cap: $5.09 billion
Formerly a subsidiary of Hertz Corporation and with a logo that still bears some similarities to its former parent, Herc Holdings (NYSE:HRI) provides equipment rental and related services to a wide range of industries.
Why Does HRI Fall Short?
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 7 percentage points
- Revenue growth over the past two years was nullified by the company’s new share issuances as its earnings per share fell by 30.3% annually
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Herc is trading at $152.40 per share, or 18.2x forward P/E. If you’re considering HRI for your portfolio, see our FREE research report to learn more.
Hudson Technologies (HDSN)
Market Cap: $224.8 million
Founded in 1991, Hudson Technologies (NASDAQ:HDSN) specializes in refrigerant services and solutions, providing refrigerant sales, reclamation, and recycling.
Why Should You Sell HDSN?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Waning returns on capital imply its previous profit engines are losing steam
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $5.40 per share, Hudson Technologies trades at 10.8x forward EV-to-EBITDA. To fully understand why you should be careful with HDSN, check out our full research report (it’s free).
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.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
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 Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.