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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.
Polaris (PII)
Market Cap: $3.11 billion
Founded in 1954, Polaris (NYSE:PII) designs and manufactures high-performance off-road vehicles, snowmobiles, and motorcycles.
Why Should You Dump PII?
- Sales tumbled by 13% annually over the last two years, showing consumer trends are working against its favor
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 25.6% annually while its revenue grew
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Polaris’s stock price of $55.29 implies a valuation ratio of 7.5x forward EV-to-EBITDA. To fully understand why you should be careful with PII, check out our full research report (it’s free).
AerSale (ASLE)
Market Cap: $413.8 million
Providing a one-stop shop that integrates multiple services and product offerings, AerSale (NASDAQ:ASLE) delivers full-service support to mid-life commercial aircraft.
Why Should You Sell ASLE?
- Muted 3.7% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Negative free cash flow raises questions about the return timeline for its investments
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
AerSale is trading at $8.66 per share, or 26.5x forward P/E. Dive into our free research report to see why there are better opportunities than ASLE.
Fortune Brands (FBIN)
Market Cap: $6.87 billion
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE:FBIN) makes plumbing, security, and outdoor living products.
Why Are We Out on FBIN?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Sales over the last two years were less profitable as its earnings per share fell by 9.5% annually while its revenue was flat
- 6.4 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $57.29 per share, Fortune Brands trades at 14.5x forward P/E. If you’re considering FBIN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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