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

Bel Fuse (BELFA)

Market Cap: $963.4 million

Founded by 26-year-old Elliot Bernstein during the electronics boom after WW2, Bel Fuse (NASDAQ:BELF.A) provides electronic systems and devices to the telecommunications, networking, transportation, and industrial sectors.

Why Do We Think Twice About BELFA?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 9.6% annually over the last two years

2. Anticipated sales growth of 6.2% for the next year implies demand will be shaky

3. Earnings per share have contracted by 12.2% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

Bel Fuse’s stock price of $74.88 implies a valuation ratio of 14.1x forward price-to-earnings. Check out our free in-depth research report to learn more about why BELFA doesn’t pass our bar.

Global Industrial (GIC)

Market Cap: $870.4 million

Formerly known as Systemax, Global Industrial (NYSE:GIC) distributes industrial and commercial products to businesses and institutions.

Why Do We Steer Clear of GIC?

1. Annual revenue growth of 6.2% over the last two years was below our standards for the industrials sector

2. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 12.3% annually

3. Waning returns on capital imply its previous profit engines are losing steam

At $22.70 per share, Global Industrial trades at 13.7x forward price-to-earnings. Read our free research report to see why you should think twice about including GIC in your portfolio, it’s free.

CompoSecure (CMPO)

Market Cap: $1.16 billion

Pioneer of the luxury metal credit card that's in the wallets of affluent consumers worldwide, CompoSecure (NASDAQ:CMPO) designs and manufactures premium metal payment cards and secure authentication solutions for financial institutions and digital asset storage.

Why Are We Wary of CMPO?

1. Modest revenue base of $420.6 million gives it less fixed cost leverage and fewer distribution channels than larger companies

2. Expenses have increased as a percentage of revenue over the last four years as its adjusted operating margin fell by 4.8 percentage points

3. Earnings per share have dipped by 6.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term