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.
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 is one small-cap stock that could be the next big thing and two best left ignored.
Two Small-Cap Stocks to Sell:
Leslie's (LESL)
Market Cap: $9.07 million
Named after founder Philip Leslie, who established the company in 1963, Leslie’s (NASDAQ: LESL) is a retailer that sells pool and spa supplies, equipment, and maintenance services.
Why Should You Dump LESL?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
- 20× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $0.98 per share, Leslie's trades at 18.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including LESL in your portfolio.
Kura Sushi (KRUS)
Market Cap: $677.3 million
Known for its conveyor belt that transports dishes to diners, Kura Sushi (NASDAQ: KRUS) is a chain of sushi restaurants serving traditional Japanese fare with a touch of modernity and technology.
Why Does KRUS Fall Short?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Negative free cash flow raises questions about the return timeline for its investments
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Kura Sushi is trading at $57.45 per share, or 35.5x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than KRUS.
One Small-Cap Stock to Buy:
Houlihan Lokey (HLI)
Market Cap: $9.74 billion
Founded in 1972 and known for its expertise in complex financial situations, Houlihan Lokey (NYSE: HLI) is a global investment bank specializing in mergers and acquisitions, capital markets, financial restructurings, and valuation advisory services.
Why Do We Love HLI?
- Annual revenue growth of 20% over the past two years was outstanding, reflecting market share gains this cycle
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 34.9% over the last two years outstripped its revenue performance
- Annual tangible book value per share growth of 34.3% over the last two years was superb and indicates its capital strength increased during this cycle
Houlihan Lokey’s stock price of $139.43 implies a valuation ratio of 16.6x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
