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 best left ignored.
Two Small-Cap Stocks to Sell:
Bandwidth (BAND)
Market Cap: $1.85 billion
Powering communications for tech giants like Microsoft, Google, and Zoom, Bandwidth (NASDAQ: BAND) provides cloud-based communications software and APIs that enable businesses to embed voice, messaging, and emergency services into their applications and platforms.
Why Do We Steer Clear of BAND?
- Revenue increased by 11.5% annually over the last two years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Gross margin of 38.2% is way below its competitors, leaving less money to invest in areas like marketing and R&D
- Static operating margin over the last year shows it couldn’t become more efficient
Bandwidth’s stock price of $57.69 implies a valuation ratio of 2x forward price-to-sales. If you’re considering BAND for your portfolio, see our FREE research report to learn more.
Grocery Outlet (GO)
Market Cap: $852.7 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 Are We Out on GO?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Efficiency has decreased over the last year as its operating margin fell by 9.2 percentage points
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Grocery Outlet is trading at $8.70 per share, or 15.7x forward P/E. Dive into our free research report to see why there are better opportunities than GO.
One Small-Cap Stock to Watch:
Urban Outfitters (URBN)
Market Cap: $6.41 billion
Founded as a purveyor of vintage items, Urban Outfitters (NASDAQ: URBN) now largely sells new apparel and accessories to teens and young adults seeking on-trend fashion.
Why Could URBN Be a Winner?
- Offensive push to build new stores and attack its untapped market opportunities is backed by its same-store sales growth
- Comparable store sales rose by 4.8% on average over the past two years, demonstrating its ability to drive increased spending at existing locations
- Performance over the past three years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
At $74.87 per share, Urban Outfitters trades at 12x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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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 Kadant (+351% five-year return). Find your next big winner with StockStory today.
