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.
El Pollo Loco (LOCO)
Market Cap: $334 million
With a name that translates into ‘The Crazy Chicken’, El Pollo Loco (NASDAQ:LOCO) is a fast food chain known for its citrus-marinated, fire-grilled chicken recipe that hails from the coastal town of Sinaloa, Mexico.
Why Is LOCO Risky?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Revenue base of $480.8 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Anticipated sales growth of 3.7% for the next year implies demand will be shaky
El Pollo Loco’s stock price of $11.18 implies a valuation ratio of 12.1x forward P/E. Check out our free in-depth research report to learn more about why LOCO doesn’t pass our bar.
Sabre (SABR)
Market Cap: $505.5 million
Originally a division of American Airlines, Sabre (NASDAQ:SABR) is a technology provider for the global travel and tourism industry.
Why Do We Steer Clear of SABR?
- Number of central reservation system transactions has disappointed over the past two years, indicating weak demand for its offerings
- Cash-burning history makes us doubt the long-term viability of its business model
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Sabre is trading at $1.29 per share, or 10.2x forward P/E. Read our free research report to see why you should think twice about including SABR in your portfolio.
MillerKnoll (MLKN)
Market Cap: $1.32 billion
Created through the 2021 merger of industry icons Herman Miller and Knoll, MillerKnoll (NASDAQ:MLKN) designs, manufactures, and distributes interior furnishings for offices, healthcare facilities, educational settings, and homes worldwide.
Why Is MLKN Not Exciting?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 8.4% annually
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.7% for the last five years
At $19.31 per share, MillerKnoll trades at 9.4x forward P/E. If you’re considering MLKN for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check 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 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.