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.

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

TreeHouse Foods (THS)

Market Cap: $998.4 million

Whether it be packaged crackers, broths, or beverages, Treehouse Foods (NYSE: THS) produces a wide range of private-label foods for grocery and food service customers.

Why Should You Sell THS?

1. Declining unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
2. Gross margin of 16.5% is below its competitors, leaving less money to invest in areas like marketing and production facilities
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

TreeHouse Foods’s stock price of $19.77 implies a valuation ratio of 10.5x forward P/E. Dive into our free research report to see why there are better opportunities than THS.

Tri Pointe Homes (TPH)

Market Cap: $2.71 billion

Established in 2009 in California, Tri Pointe Homes (NYSE: TPH) is a United States homebuilder recognized for its innovative and sustainable approach to creating premium, life-enhancing homes.

Why Do We Pass on TPH?

1. Demand cratered as it couldn’t win new orders over the past two years, leading to an average 7.6% decline in its backlog
2. Projected sales decline of 18.5% over the next 12 months indicates demand will continue deteriorating
3. Sales were less profitable over the last two years as its earnings per share fell by 8.1% annually, worse than its revenue declines

At $30.01 per share, Tri Pointe Homes trades at 13.8x forward P/E. Read our free research report to see why you should think twice about including TPH in your portfolio.

DaVita (DVA)

Market Cap: $8.87 billion

With over 2,600 dialysis centers across the United States and a presence in 13 countries, DaVita (NYSE: DVA) operates a network of dialysis centers providing treatment and care for patients with chronic kidney disease and end-stage kidney disease.

Why Are We Wary of DVA?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.7% over the last five years was below our standards for the healthcare sector
2. Flat treatments over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
3. Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its two-year trend

DaVita is trading at $124.20 per share, or 10.8x forward P/E. If you’re considering DVA for your portfolio, see our FREE research report to learn more.

High-Quality Stocks for All Market Conditions

When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at Top 9 Market-Beating Stocks. 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-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

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