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.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.

PubMatic (PUBM)

Market Cap: $454.7 million

Founded in 2006 as an online ad platform helping ad sellers, Pubmatic (NASDAQ: PUBM) is a fully integrated cloud-based programmatic advertising platform.

Why Does PUBM Worry Us?

1. Muted 8.7% annual revenue growth over the last three years shows its demand lagged behind its software peers

2. Estimated sales growth of 2.6% for the next 12 months implies demand will slow from its three-year trend

3. Steep infrastructure costs and weaker unit economics for a software company are reflected in its low gross margin of 65.3%

At $9.49 per share, PubMatic trades at 1.7x forward price-to-sales. If you’re considering PUBM for your portfolio, see our FREE research report to learn more .

Denny's (DENN)

Market Cap: $168.3 million

Open around the clock, Denny’s (NASDAQ:DENN) is a chain of diner restaurants serving breakfast and traditional American fare.

Why Are We Out on DENN?

1. Restaurant closures demonstrate a defensive approach to eliminating underperforming locations

2. Subscale operations are evident in its revenue base of $452.3 million, meaning it has fewer distribution channels than its larger rivals

3. 13.2 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position

Denny's is trading at $3.27 per share, or 5.6x forward price-to-earnings. To fully understand why you should be careful with DENN, check out our full research report (it’s free) .

Carriage Services (CSV)

Market Cap: $603.3 million

Established in 1991, Carriage Services (NYSE:CSV) is a provider of funeral and cemetery services in the United States.

Why Are We Hesitant About CSV?

1. Annual revenue growth of 4.5% over the last two years was below our standards for the consumer discretionary sector

2. Estimated sales growth of 7.2% for the next 12 months is soft and implies weaker demand

3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam

Carriage Services’s stock price of $38.96 implies a valuation ratio of 12.5x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than CSV .