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.

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.

America's Car-Mart (CRMT)

Market Cap: $450.5 million

With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ:CRMT) sells used cars to budget-conscious consumers.

Why Do We Pass on CRMT?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience

2. Gross margin of 20.2% is an output of its commoditized inventory

3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

America's Car-Mart is trading at $54.53 per share, or 17.3x forward P/E. Read our free research report to see why you should think twice about including CRMT in your portfolio, it’s free.

Sotera Health Company (SHC)

Market Cap: $3.49 billion

With a critical role in ensuring the safety of millions of patients worldwide, Sotera Health (NASDAQGS:SHC) provides sterilization services, lab testing, and advisory services to ensure medical devices, pharmaceuticals, and food products are safe for use.

Why Does SHC Fall Short?

1. Sales trends were unexciting over the last two years as its 5.9% annual growth was below the typical healthcare company

2. Smaller revenue base of $1.11 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy

3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

Sotera Health Company’s stock price of $12.30 implies a valuation ratio of 16.1x forward P/E. Check out our free in-depth research report to learn more about why SHC doesn’t pass our bar.

Genco (GNK)

Market Cap: $579.1 million

Headquartered in NYC, Genco (NYSE:GNK) is a shipping company that transports dry bulk cargo along worldwide maritime routes.

Why Should You Dump GNK?

1. Performance surrounding its owned vessels has lagged its peers

2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term

3. Free cash flow margin dropped by 6.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up