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.

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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.

SunOpta (STKL)

Market Cap: $716.2 million

Committed to clean-label foods, SunOpta (NASDAQ: STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.

Why Does STKL Fall Short?

1. Annual revenue declines of 4.9% over the last three years indicate problems with its market positioning
2. Subscale operations are evident in its revenue base of $763.2 million, meaning it has fewer distribution channels than its larger rivals
3. Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 15.6%

SunOpta is trading at $6.18 per share, or 25.1x forward P/E. Check out our free in-depth research report to learn more about why STKL doesn’t pass our bar.

Merit Medical Systems (MMSI)

Market Cap: $4.92 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 Give Us Pause?

1. Revenue base of $1.43 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Below-average returns on capital indicate management struggled to find compelling investment opportunities

At $83.08 per share, Merit Medical Systems trades at 24.1x forward P/E. Read our free research report to see why you should think twice about including MMSI in your portfolio.

PacBio (PACB)

Market Cap: $375.5 million

Pioneering what scientists call "HiFi long-read sequencing," recognized as Nature Methods' method of the year for 2022, Pacific Biosciences (NASDAQ: PACB) develops advanced DNA sequencing systems that enable scientists and researchers to analyze genomes with unprecedented accuracy and completeness.

Why Is PACB Risky?

1. Muted 3.4% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
2. Free cash flow margin shrank by 28.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

PacBio’s stock price of $1.27 implies a valuation ratio of 2.2x forward price-to-sales. If you’re considering PACB for your portfolio, see our FREE research report to learn more.

Stocks We Like More

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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 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 Comfort Systems (+782% 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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