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.

ON24 (ONTF)

Market Cap: $235.3 million

Started in 1998 as a platform to broadcast press conferences, ON24’s (NYSE:ONTF) software helps organizations organize online webinars and other virtual events and convert prospects into customers.

Why Do We Steer Clear of ONTF?

1. Offerings couldn’t generate interest over the last year as its billings have averaged 8.1% declines

2. Platform has low switching costs as its net revenue retention rate of 91% demonstrates high turnover

3. Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue

ON24 is trading at $5.75 per share, or 1.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ONTF .

Light & Wonder (LNW)

Market Cap: $8.62 billion

With names as crazy as Ultimate Fire Link Power 4 for its products, Light & Wonder (NASDAQ:LNW) is a gaming company supplying the casino industry with slot machines, table games, and digital games.

Why Are We Wary of LNW?

1. Products and services have few die-hard fans as sales have declined by 1.3% annually over the last five years

2. Estimated sales growth of 9.1% for the next 12 months implies demand will slow from its two-year trend

3. ROIC of 7.3% reflects management’s challenges in identifying attractive investment opportunities

At $102.42 per share, Light & Wonder trades at 18.8x forward price-to-earnings. To fully understand why you should be careful with LNW, check out our full research report (it’s free) .

Kadant (KAI)

Market Cap: $4.20 billion

Headquartered in Massachusetts, Kadant (NYSE:KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.

Why Are We Hesitant About KAI?

1. Demand is forecasted to shrink as its estimated sales for the next 12 months are flat

2. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.5% annually

3. Free cash flow margin didn’t grow over the last five years

Kadant’s stock price of $350.38 implies a valuation ratio of 32.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why KAI doesn’t pass our bar .

Stocks We Like More

The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.

Get started 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 Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free .