3 Small-Cap Stocks We Steer Clear Of

Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.

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.

Choice Hotels (CHH)

Market Cap: $4.87 billion

With almost 100% of its properties under franchise agreements, Choice Hotels (NYSE:CHH) is a hotel franchisor known for its diverse brand portfolio including Comfort Inn, Quality Inn, and Clarion.

Why Is CHH Risky?

1. Revenue per room has disappointed over the past two years due to weaker trends in its daily rates and occupancy levels
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

At $109.24 per share, Choice Hotels trades at 15x forward P/E. If you’re considering CHH for your portfolio, see our FREE research report to learn more.

Tennant (TNC)

Market Cap: $1.16 billion

As the world’s largest manufacturer of autonomous mobile robots, Tennant (NYSE:TNC) designs, manufactures, and sells cleaning products to various sectors.

Why Do We Steer Clear of TNC?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last two years
2. Earnings per share have contracted by 2.1% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Tennant is trading at $68.62 per share, or 13.8x forward P/E. To fully understand why you should be careful with TNC, check out our full research report (it’s free).

EVgo (EVGO)

Market Cap: $206.9 million

Created through a settlement between NRG Energy and the California Public Utilities Commission, EVgo (NASDAQ:EVGO) is a provider of electric vehicle charging solutions, operating fast charging stations across the United States.

Why Does EVGO Fall Short?

1. Historical operating margin losses point to an inefficient cost structure
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

EVgo’s stock price of $1.47 implies a valuation ratio of 16.6x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than EVGO.

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.