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.
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 is one small-cap stock that could be the next big thing and two that may have trouble.
Two Small-Cap Stocks to Sell:
WD-40 (WDFC)
Market Cap: $2.61 billion
Short for “Water Displacement perfected on the 40th try”, WD-40 (NASDAQ: WDFC) is a renowned American consumer goods company known for its iconic and versatile spray, WD-40 Multi-Use Product.
Why Does WDFC Worry Us?
- Lackluster 6.7% annual revenue growth over the last three years indicates the company is losing ground to competitors
- Revenue base of $612.5 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Free cash flow margin dropped by 4.5 percentage points over the last year, implying the company became more capital intensive as competition picked up
WD-40 is trading at $192.59 per share, or 34.9x forward P/E. Read our free research report to see why you should think twice about including WDFC in your portfolio.
Smith & Wesson (SWBI)
Market Cap: $446.5 million
With a history dating back to 1852, Smith & Wesson (NASDAQ: SWBI) is a firearms manufacturer known for its handguns and rifles.
Why Should You Sell SWBI?
- Products and services have few die-hard fans as sales have declined by 6.6% annually over the last five years
- Negative free cash flow raises questions about the return timeline for its investments
- Eroding returns on capital suggest its historical profit centers are aging
Smith & Wesson’s stock price of $10.10 implies a valuation ratio of 54.4x forward P/E. To fully understand why you should be careful with SWBI, check out our full research report (it’s free for active Edge members).
One Small-Cap Stock to Watch:
Perdoceo Education (PRDO)
Market Cap: $2.24 billion
Formerly known as Career Education Corporation, Perdoceo Education (NASDAQ: PRDO) is an educational services company that specializes in postsecondary education.
Why Should PRDO Be on Your Watchlist?
- Excellent operating margin of 24.7% highlights the efficiency of its business model
- Strong free cash flow margin of 23.7% enables it to reinvest or return capital consistently
- ROIC punches in at 49.1%, illustrating management’s expertise in identifying profitable investments
At $33.82 per share, Perdoceo Education trades at 21.3x forward EV-to-EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
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 6 Stocks for this week. 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 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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