3 Small-Cap Stocks We're Skeptical Of

Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.

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.

Grocery Outlet (GO)

Market Cap: $926.4 million

Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ:GO) is a discount grocery store chain that offers substantial discounts on name-brand products.

Why Should You Dump GO?

1. Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 30.3%
2. Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Grocery Outlet’s stock price of $9.45 implies a valuation ratio of 11.7x forward P/E. Check out our free in-depth research report to learn more about why GO doesn’t pass our bar.

Graphic Packaging Holding (GPK)

Market Cap: $4.29 billion

Founded in 1991, Graphic Packaging (NYSE:GPK) is a provider of paper-based packaging solutions for a wide range of products.

Why Is GPK Risky?

1. Declining unit sales over the past two years suggest it might have to lower prices to accelerate growth
2. Projected sales decline of 1.3% over the next 12 months indicates demand will continue deteriorating
3. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term

Graphic Packaging Holding is trading at $14.56 per share, or 8.8x forward P/E. To fully understand why you should be careful with GPK, check out our full research report (it’s free).

LifeStance Health Group (LFST)

Market Cap: $2.75 billion

With over 6,600 licensed mental health professionals treating more than 880,000 patients annually, LifeStance Health (NASDAQ:LFST) provides outpatient mental health services through a network of clinicians offering psychiatric evaluations, psychological testing, and therapy across 33 states.

Why Does LFST Worry Us?

1. Revenue base of $1.37 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Poor free cash flow margin of -0.5% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Negative returns on capital show management lost money while trying to expand the business

At $7.08 per share, LifeStance Health Group trades at 30.8x forward P/E. Dive into our free research report to see why there are better opportunities than LFST.

Stocks We Like More

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. Check out our Top 5 Strong Momentum 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 (+1,326% between June 2020 and June 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.