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.
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.
Matthews (MATW)
Market Cap: $827.2 million
Originally a death care company, Matthews International (NASDAQ: MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.
Why Are We Out on MATW?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.8% for the last two years
- Stagnant returns on capital show management has failed to improve the company’s business quality
Matthews is trading at $26.85 per share, or 23.5x forward P/E. Dive into our free research report to see why there are better opportunities than MATW.
UFP Industries (UFPI)
Market Cap: $5.41 billion
Beginning as a lumber supplier in the 1950s, UFP Industries (NASDAQ: UFPI) is a holding company making building materials for the construction, retail, and industrial sectors.
Why Should You Sell UFPI?
- Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 20.4% annually, worse than its revenue
- Waning returns on capital imply its previous profit engines are losing steam
UFP Industries’s stock price of $92.10 implies a valuation ratio of 16.4x forward P/E. Check out our free in-depth research report to learn more about why UFPI doesn’t pass our bar.
Provident Financial Services (PFS)
Market Cap: $2.66 billion
Founded in 1839 and serving communities across New Jersey, Pennsylvania, and New York, Provident Financial Services (NYSE: PFS) operates a regional bank providing commercial, residential, and consumer lending alongside wealth management and insurance services.
Why Does PFS Worry Us?
- Weak unit economics are reflected in its net interest margin of 3.3%, one of the worst among bank companies
- Incremental sales over the last two years were less profitable as its 2.2% annual earnings per share growth lagged its revenue gains
- Tangible book value per share tumbled by 1.3% annually over the last two years, showing banking sector trends are working against its favor during this cycle
At $20.35 per share, Provident Financial Services trades at 1x forward P/B. If you’re considering PFS for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Strong Momentum Stocks for this week. 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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today.
