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.

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.

Flowers Foods (FLO)

Market Cap: $3.89 billion

With Wonder Bread as its premier brand, Flower Foods (NYSE:FLO) is a packaged foods company that focuses on bakery products such as breads, buns, and cakes.

Why Are We Wary of FLO?

1. Declining unit sales over the past two years imply it may need to invest in product improvements to get back on track
2. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
3. Earnings growth underperformed the sector average over the last three years as its EPS grew by just 1.2% annually

At $18.44 per share, Flowers Foods trades at 14.1x forward price-to-earnings. Read our free research report to see why you should think twice about including FLO in your portfolio, it’s free.

Itron (ITRI)

Market Cap: $4.74 billion

Founded by a small group of engineers who wanted to build a more efficient way to read utility meters, Itron (NASDAQ:ITRI) offers energy and water management products for the utility industry, municipalities, and industrial customers.

Why Does ITRI Give Us Pause?

1. Flat sales over the last five years suggest it must find different ways to grow during this cycle
2. Estimated sales growth of 1.2% for the next 12 months implies demand will slow from its two-year trend
3. Underwhelming 3.2% return on capital reflects management’s difficulties in finding profitable growth opportunities

Itron is trading at $106.80 per share, or 21x forward price-to-earnings. To fully understand why you should be careful with ITRI, check out our full research report (it’s free).

Schneider (SNDR)

Market Cap: $3.91 billion

Employing thousands of drivers across the country to make deliveries, Schneider (NYSE:SNDR) makes full truckload and intermodal deliveries regionally and across borders.

Why Should You Dump SNDR?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 10.5% annually over the last two years
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 11% annually while its revenue grew
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Schneider’s stock price of $22.80 implies a valuation ratio of 19.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why SNDR doesn’t pass our bar.

Stocks We Like More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.