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Stocks trading in the $1-10 range are generally smaller players with less risk than their penny stock counterparts. But that doesn’t mean the underlying businesses are cheap, and we advise caution as many have questionable fundamentals.

The bad behavior exhibited by lower-quality companies in this space can spook even the most seasoned professionals, which is why we started StockStory - to separate the good from the bad. Keeping that in mind, here are three stocks under $10 to avoid and some other investments you should consider instead.

El Pollo Loco (LOCO)

Share Price: $8.89

With a name that translates into ‘The Crazy Chicken’, El Pollo Loco (NASDAQ:LOCO) is a fast food chain known for its citrus-marinated, fire-grilled chicken recipe that hails from the coastal town of Sinaloa, Mexico.

Why Should You Dump LOCO?

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. Modest revenue base of $476 million gives it less fixed cost leverage and fewer distribution channels than larger companies

3. Estimated sales growth of 3.5% for the next 12 months is soft and implies weaker demand

El Pollo Loco is trading at $8.89 per share, or 4.1x forward EV-to-EBITDA. To fully understand why you should be careful with LOCO, check out our full research report (it’s free).

Red Robin (RRGB)

Share Price: $2.77

Known for its bottomless steak fries, Red Robin (NASDAQ:RRGB) is a chain of casual restaurants specializing in burgers and general American fare.

Why Do We Avoid RRGB?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience

2. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable

3. High net-debt-to-EBITDA ratio of 14× increases the risk of forced asset sales or dilutive financing if operational performance weakens

Red Robin’s stock price of $2.77 implies a valuation ratio of 0.9x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than RRGB.

Custom Truck One Source (CTOS)

Share Price: $4.20

Inspired by a family gas station, Custom Truck One Source (NYSE:CTOS) is a distributor of trucks and heavy equipment.

Why Is CTOS Risky?

1. Muted 4.6% annual revenue growth over the last two years shows its demand lagged behind its industrials peers

2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 29.2 percentage points

3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders