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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.

These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Brinker International (EAT)

Market Cap: $6.36 billion

Founded by Norman Brinker in Dallas, Brinker International (NYSE:EAT) is a casual restaurant chain that operates the Chili’s, Maggiano’s Little Italy, and It’s Just Wings banners.

Why Does EAT Give Us Pause?

1. Slow expansion of restaurants indicates a strategic shift toward maximizing returns from existing locations

2. Lacking pricing power results in an inferior gross margin of 15.1% that must be offset by turning more tables

3. Poor expense management has led to an operating margin of 6.2% that is below the industry average

Brinker International’s stock price of $143.46 implies a valuation ratio of 20.7x forward price-to-earnings. Check out our free in-depth research report to learn more about why EAT doesn’t pass our bar.

RE/MAX (RMAX)

Market Cap: $163.4 million

Short for Real Estate Maximums, RE/MAX (NYSE:RMAX) operates a real estate franchise network spanning over 100 countries and territories.

Why Are We Out on RMAX?

1. Number of agents has disappointed over the past two years, indicating weak demand for its offerings

2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 10.2% annually while its revenue grew

3. Free cash flow margin is forecasted to shrink by 13.3 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors

RE/MAX is trading at $8.53 per share, or 6.6x forward price-to-earnings. To fully understand why you should be careful with RMAX, check out our full research report (it’s free).

UFP Technologies (UFPT)

Market Cap: $1.65 billion

Founded in 1963, UFP Technologies (NASDAQ:UFPT) designs and manufactures medical products, sterile packaging, and other highly-engineered custom products for healthcare settings.

Why Is UFPT Not Exciting?

1. Subscale operations are evident in its revenue base of $504.4 million, meaning it has fewer distribution channels than its larger rivals

2. Free cash flow margin was stuck in limbo over the last five years