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. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Hillenbrand (HI)
Market Cap: $2.23 billion
Hillenbrand, Inc. (NYSE: HI) is an industrial company that designs, manufactures, and sells highly engineered processing equipment and solutions for various industries.
Why Do We Pass on HI?
- 3.5% annual revenue growth over the last two years was slower than its industrials peers
- Free cash flow margin dropped by 18.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Waning returns on capital imply its previous profit engines are losing steam
Hillenbrand is trading at $31.67 per share, or 13x forward P/E. To fully understand why you should be careful with HI, check out our full research report (it’s free for active Edge members).
Artivion (AORT)
Market Cap: $2.26 billion
Formerly known as CryoLife until its 2022 rebranding, Artivion (NYSE: AORT) develops and manufactures medical devices and preserves human tissues used in cardiac and vascular surgical procedures for patients with aortic disease.
Why Does AORT Fall Short?
- Modest revenue base of $422.6 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.1% for the last five years
- Underwhelming 2.3% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $47.65 per share, Artivion trades at 64.7x forward P/E. Read our free research report to see why you should think twice about including AORT in your portfolio.
DXC (DXC)
Market Cap: $2.40 billion
Born from the 2017 merger of Computer Sciences Corporation and HP Enterprise's services business, DXC Technology (NYSE: DXC) is a global IT services company that helps businesses transform their technology infrastructure, applications, and operations.
Why Should You Sell DXC?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Flat earnings per share over the last five years underperformed the sector average
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam
DXC’s stock price of $13.76 implies a valuation ratio of 4.4x forward P/E. Check out our free in-depth research report to learn more about why DXC doesn’t pass our bar.
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 6 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 (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% 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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