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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.

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.

eHealth (EHTH)

Market Cap: $228.2 million

Aiming to address a high-stakes and often confusing decision, eHealth (NASDAQ:EHTH) guides consumers through health insurance enrollment and related topics.

Why Are We Hesitant About EHTH?

1. Flat sales over the last three years suggest it must innovate and find new ways to grow

2. Estimated sales for the next 12 months are flat and imply a softer demand environment

3. Cash burn makes us question whether it can achieve sustainable long-term growth

At $7.78 per share, eHealth trades at 4.6x forward EV-to-EBITDA. To fully understand why you should be careful with EHTH, check out our full research report (it’s free) .

Endeavor (EDR)

Market Cap: $9.37 billion

Owner of the UFC, WWE, and a client roster including Christian Bale, Endeavor (NYSE:EDR) is a diversified global entertainment, sports, and content company known for its talent representation and involvement in the entertainment industry.

Why Is EDR Risky?

1. Muted 9.5% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers

2. Sales are projected to tank by 1.8% over the next 12 months as demand evaporates

3. Underwhelming 0.2% return on capital reflects management’s difficulties in finding profitable growth opportunities

Endeavor’s stock price of $29 implies a valuation ratio of 14.2x forward price-to-earnings. Check out our free in-depth research report to learn more about why EDR doesn’t pass our bar .

Nikola (NKLA)

Market Cap: $9.71 million

Named after Nikola Tesla, Nikola (NASDAQ:NKLA) manufactures zero-emission vehicles, focusing on battery-electric and hydrogen fuel cell electric trucks.

Why Does NKLA Fall Short?

1. Negative gross margin means it loses money on every sale and must pivot or scale quickly to survive

2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Nikola is trading at $0.19 per share, or 0.1x trailing 12-month price-to-sales. Read our free research report to see why you should think twice about including NKLA in your portfolio, it’s free .

Stocks We Like More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out 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 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free .