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. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Teradata (TDC)

Market Cap: $2.15 billion

Part of point-of-sale and ATM company NCR from 1991 to 2007, Teradata (NYSE: TDC) offers a software-as-service platform that helps organizations manage and analyze their data across multiple storages.

Why Is TDC Risky?

1. Products, pricing, or go-to-market strategy need some adjustments as its billings have averaged 3.4% declines over the last year
2. Sales are projected to tank by 3.2% over the next 12 months as its demand continues evaporating
3. Gross margin of 60.2% reflects its relatively high servicing costs

At $22.81 per share, Teradata trades at 1.3x forward price-to-sales. If you’re considering TDC for your portfolio, see our FREE research report to learn more.

YETI (YETI)

Market Cap: $2.33 billion

Founded by two brothers from Texas, YETI (NYSE: YETI) specializes in durable outdoor goods including coolers, drinkware, and other gear tailored to adventure enthusiasts.

Why Does YETI Give Us Pause?

1. Sales trends were unexciting over the last two years as its 7.1% annual growth was below the typical consumer discretionary company
2. Estimated sales growth of 3.5% for the next 12 months implies demand will slow from its two-year trend
3. Diminishing returns on capital suggest its earlier profit pools are drying up

YETI’s stock price of $28.75 implies a valuation ratio of 10.4x forward P/E. Dive into our free research report to see why there are better opportunities than YETI.

Taylor Morrison Home (TMHC)

Market Cap: $5.89 billion

Named “America’s Most Trusted Home Builder” in 2019, Taylor Morrison Home (NYSE: TMHC) builds single family homes and communities across the United States.

Why Are We Cautious About TMHC?

1. Demand cratered as it couldn’t win new orders over the past two years, leading to an average 13% decline in its backlog
2. Earnings per share have contracted by 2.6% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.4 percentage points

Taylor Morrison Home is trading at $58.67 per share, or 6.7x forward P/E. Check out our free in-depth research report to learn more about why TMHC doesn’t pass our bar.

Stocks We Like More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking 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 176% over the last five years.

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.