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.

The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three small-cap stocks to avoid and some other investments you should consider instead.

Merit Medical Systems (MMSI)

Market Cap: $5.59 billion

Founded in 1987 and now offering over 1,700 patented products across global markets, Merit Medical Systems (NASDAQ: MMSI) manufactures and markets specialized medical devices used in minimally invasive procedures for cardiology, radiology, oncology, critical care, and endoscopy.

Why Does MMSI Worry Us?

1. Muted 6.8% annual revenue growth over the last five years shows its demand lagged behind its healthcare peers
2. Subscale operations are evident in its revenue base of $1.39 billion, meaning it has fewer distribution channels than its larger rivals
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

Merit Medical Systems’s stock price of $94.60 implies a valuation ratio of 25.3x forward P/E. To fully understand why you should be careful with MMSI, check out our full research report (it’s free).

Addus HomeCare (ADUS)

Market Cap: $2.05 billion

Serving approximately 66,000 clients across 22 states with a focus on "dual eligible" Medicare and Medicaid beneficiaries, Addus HomeCare (NASDAQ: ADUS) provides in-home personal care, hospice, and home health services to elderly, chronically ill, and disabled individuals.

Why Is ADUS Not Exciting?

1. Modest revenue base of $1.21 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
2. Free cash flow margin has stayed in place over the last five years

At $112.68 per share, Addus HomeCare trades at 18.2x forward P/E. Check out our free in-depth research report to learn more about why ADUS doesn’t pass our bar.

Azenta (AZTA)

Market Cap: $1.30 billion

Serving as the guardian of some of medicine's most valuable materials, Azenta (NASDAQ: AZTA) provides biological sample management, storage, and genomic services that help pharmaceutical and biotechnology companies preserve and analyze critical research materials.

Why Is AZTA Risky?

1. Sales tumbled by 6.8% annually over the last five years, showing market trends are working against its favor during this cycle
2. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
3. Negative returns on capital show management lost money while trying to expand the business, and its falling returns suggest its earlier profit pools are drying up

Azenta is trading at $28.36 per share, or 38.6x forward P/E. Read our free research report to see why you should think twice about including AZTA in your portfolio.

High-Quality Stocks for All Market Conditions

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free.