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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, 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:
Freshpet (FRPT)
Market Cap: $3.95 billion
Standing out from typical processed pet foods, Freshpet (NASDAQ:FRPT) is a pet food company whose product portfolio includes natural meals and treats for dogs and cats.
Why Does FRPT Fall Short?
- Revenue base of $1.01 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Negative returns on capital show that some of its growth strategies have backfired
Freshpet is trading at $80.24 per share, or 62.3x forward P/E. Read our free research report to see why you should think twice about including FRPT in your portfolio.
Advanced Energy (AEIS)
Market Cap: $4.35 billion
Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ:AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.
Why Do We Think AEIS Will Underperform?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 8.8% annually over the last two years
- Free cash flow margin dropped by 6.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $115.58 per share, Advanced Energy trades at 23.1x forward P/E. If you’re considering AEIS for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Watch:
Doximity (DOCS)
Market Cap: $9.67 billion
Founded in 2010 and named for a combination of “docs” and “proximity”, Doximity (NYSE: DOCS) is the leading social network for U.S. medical professionals.
Why Does DOCS Stand Out?
- Billings have averaged 23.5% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Doximity’s stock price of $51.57 implies a valuation ratio of 16.7x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking 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 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.