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.

Himax (HIMX)

Market Cap: $1.13 billion

Taiwan-based Himax Technologies (NASDAQ:HIMX) is a leading manufacturer of display driver chips and timing controllers used in TVs, laptops, and mobile phones.

Why Are We Wary of HIMX?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 13.1% annually over the last two years

2. Projected sales decline of 5% over the next 12 months indicates demand will continue deteriorating

3. Subpar operating margin of 6% constrains its ability to invest in process improvements or effectively respond to new competitive threats

At $6.22 per share, Himax trades at 32.3x forward price-to-earnings. If you’re considering HIMX for your portfolio, see our FREE research report to learn more .

Brunswick (BC)

Market Cap: $2.89 billion

Formerly known as Brunswick-Balke-Collender Company, Brunswick (NYSE: BC) is a designer and manufacturer of recreational marine products, including boats, engines, and marine parts.

Why Do We Pass on BC?

1. Annual revenue declines of 12.3% over the last two years indicate problems with its market positioning

2. Projected sales for the next 12 months are flat and suggest demand will be subdued

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

Brunswick’s stock price of $43.80 implies a valuation ratio of 8.7x forward price-to-earnings. Check out our free in-depth research report to learn more about why BC doesn’t pass our bar .

SAIC (SAIC)

Market Cap: $5.57 billion

With over five decades of experience supporting national security missions, Science Applications International Corporation (NASDAQ:SAIC) provides technical, engineering, and enterprise IT services primarily to U.S. government agencies and military branches.

Why Should You Sell SAIC?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.5% annually over the last two years

2. Estimated sales growth of 2.7% for the next 12 months is soft and implies weaker demand

3. Underwhelming 11.7% return on capital reflects management’s difficulties in finding profitable growth opportunities