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.

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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

ThredUp (TDUP)

Market Cap: $404.4 million

Founded to revolutionize thrifting, ThredUp (NASDAQ:TDUP) is a leading online fashion resale marketplace offering a wide selection of gently-used clothing and accessories.

Why Do We Pass on TDUP?

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

2. Suboptimal cost structure is highlighted by its history of operating losses

3. Cash-burning history makes us doubt the long-term viability of its business model

At $3.44 per share, ThredUp trades at 52.6x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including TDUP in your portfolio, it’s free .

OneWater (ONEW)

Market Cap: $205 million

A public company since early 2020, OneWater Marine (NASDAQ:ONEW) sells boats, yachts, and other marine products.

Why Are We Cautious About ONEW?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand

2. Earnings per share have contracted by 35.9% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance

3. High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens

OneWater’s stock price of $12.95 implies a valuation ratio of 7.1x forward price-to-earnings. Check out our free in-depth research report to learn more about why ONEW doesn’t pass our bar .

WESCO (WCC)

Market Cap: $7.33 billion

Based in Pittsburgh, WESCO (NYSE:WCC) provides electrical, industrial, and communications products and augments them with services such as supply chain management.

Why Does WCC Fall Short?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion

2. Anticipated sales growth of 2.3% for the next year implies demand will be shaky

3. Earnings per share have dipped by 15.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term