3 Small-Cap Stocks with Warning Signs

Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.

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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.

Academy Sports (ASO)

Market Cap: $3.74 billion

Founded in 1938 as a tire shop before expanding into fishing equipment, Academy Sports & Outdoor (NASDAQ:ASO) sells a broad selection of sporting goods but is still known for its outdoor activity merchandise.

Why Does ASO Give Us Pause?

1. Annual revenue declines of 2.4% over the last three years indicate problems with its market positioning
2. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
3. Free cash flow margin shrank by 3.9 percentage points over the last year, suggesting the company is consuming more capital to stay competitive

At $56.17 per share, Academy Sports trades at 8.6x forward P/E. If you’re considering ASO for your portfolio, see our FREE research report to learn more.

Bloomin' Brands (BLMN)

Market Cap: $508.7 million

Owner of the iconic Australian-themed Outback Steakhouse, Bloomin’ Brands (NASDAQ:BLMN) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.

Why Do We Avoid BLMN?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
2. Sales are projected to be flat over the next 12 months and imply weak demand
3. High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Bloomin' Brands’s stock price of $5.99 implies a valuation ratio of 6.4x forward P/E. Check out our free in-depth research report to learn more about why BLMN doesn’t pass our bar.

Covenant Logistics (CVLG)

Market Cap: $678.5 million

Started with 25 trucks and 50 trailers, Covenant Logistics (NASDAQ:CVLG) is a provider of expedited long haul freight services, offering a range of logistics solutions.

Why Are We Out on CVLG?

1. Sales trends were unexciting over the last two years as its 2.7% annual growth was below the typical industrials company
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.1 percentage points
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Covenant Logistics is trading at $27.07 per share, or 13.5x forward P/E. To fully understand why you should be careful with CVLG, check out our full research report (it’s free).

Stocks We Like More

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Don’t wait for the next volatility shock. Check out our Top 9 Market-Beating Stocks. 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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.