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.

Advanced Energy (AEIS)

Market Cap: $7.90 billion

Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ: AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.

Why Is AEIS Risky?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 3.1 percentage points
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Advanced Energy’s stock price of $208.90 implies a valuation ratio of 28.6x forward P/E. To fully understand why you should be careful with AEIS, check out our full research report (it’s free for active Edge members).

Plexus (PLXS)

Market Cap: $3.93 billion

With over 20,000 team members across 26 global facilities, Plexus (NASDAQ: PLXS) designs, manufactures, and services complex electronic products for companies in aerospace/defense, healthcare, and industrial sectors.

Why Is PLXS Not Exciting?

1. Annual sales declines of 2.1% for the past two years show its products and services struggled to connect with the market during this cycle
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Plexus is trading at $147.70 per share, or 19.9x forward P/E. Read our free research report to see why you should think twice about including PLXS in your portfolio.

Stratasys (SSYS)

Market Cap: $741.6 million

Born from the Founder’s idea of making a toy frog with a glue gun, Stratasys (NASDAQ: SSYS) offers 3D printers and related materials, software, and services to many industries.

Why Should You Dump SSYS?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 5.6% annually over the last two years
2. Poor expense management has led to operating margin losses
3. 6.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $8.69 per share, Stratasys trades at 44.5x forward P/E. Dive into our free research report to see why there are better opportunities than SSYS.

Stocks We Like More

Check out the high-quality names we’ve flagged in 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 244% over the last five years (as of June 30, 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.