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. That said, here are two small-cap stocks that could be the next 100 baggers and one that could be down big.
One Small-Cap Stock to Sell:
Lovesac (LOVE)
Market Cap: $233 million
Known for its oversized, premium beanbags, Lovesac (NASDAQ: LOVE) is a specialty furniture brand selling modular furniture.
Why Do We Steer Clear of LOVE?
- Muted 14.8% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
- Low free cash flow margin of 1.3% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Lovesac’s stock price of $15.73 implies a valuation ratio of 9.7x forward EV-to-EBITDA. If you’re considering LOVE for your portfolio, see our FREE research report to learn more.
Two Small-Cap Stocks to Watch:
Arlo Technologies (ARLO)
Market Cap: $1.43 billion
Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE: ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.
Why Are We Fans of ARLO?
- 7.6% annual revenue growth over the last five years surpassed the sector average as its services resonated with customers
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 55.3% outpaced its revenue gains
- Free cash flow margin grew by 17.6 percentage points over the last five years, giving the company more chips to play with
Arlo Technologies is trading at $13.32 per share, or 14.9x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Alignment Healthcare (ALHC)
Market Cap: $2.82 billion
Founded in 2013 with a mission to transform healthcare for seniors, Alignment Healthcare (NASDAQ: ALHC) provides Medicare Advantage health plans for seniors with features like concierge services, transportation benefits, and technology-driven care coordination.
Why Will ALHC Beat the Market?
- Market share has increased this cycle as its 43.2% annual revenue growth over the last two years was exceptional
- Performance over the past five years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 47.9% outpaced its revenue gains
- Free cash flow margin increased by 6.8 percentage points over the last five years, giving the company more capital to invest or return to shareholders
At $13.47 per share, Alignment Healthcare trades at 21.7x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662% between October 2022 and February 2026. AppLovin before it ran 753% between February 2024 and February 2026. Nvidia before it ran 1,178% between January 2023 and February 2026. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.
