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.

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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.

H&E Equipment Services (HEES)

Market Cap: $3.43 billion

Founded after recognizing a growth trend along the Mississippi River and opportunities developing in the earthmoving and construction equipment business, H&E (NASDAQ: HEES) offers machinery for companies to purchase or rent.

Why Do We Think HEES Will Underperform?

1. Muted 2.1% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
2. Earnings per share fell by 1.3% annually over the last five years while its revenue grew, partly because it diluted shareholders
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.5% for the last five years

At $94.50 per share, H&E Equipment Services trades at 6.3x forward EV-to-EBITDA. To fully understand why you should be careful with HEES, check out our full research report (it’s free).

Manitowoc (MTW)

Market Cap: $361.3 million

Contracted by the United States Navy during WWII, Manitowoc (NYSE: MTW) provides cranes and lifting equipment.

Why Is MTW Risky?

1. Demand cratered as it couldn’t win new orders over the past two years, leading to an average 15.3% decline in its backlog
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 17.6% annually
3. Free cash flow margin dropped by 6.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up

Manitowoc’s stock price of $10.19 implies a valuation ratio of 20.9x forward P/E. If you’re considering MTW for your portfolio, see our FREE research report to learn more.

Helios (HLIO)

Market Cap: $1.83 billion

Founded on the principle of treating others as one wants to be treated, Helios (NYSE: HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.

Why Are We Out on HLIO?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 2.9% annually while its revenue grew
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Helios is trading at $56.07 per share, or 25.7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than HLIO.

Stocks We Like More

When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at 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-micro-cap company Kadant (+351% 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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