Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are two small-cap stocks that could be the next big thing and one that may have trouble.
One Small-Cap Stock to Sell:
Resideo (REZI)
Market Cap: $4.72 billion
Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.
Why Do We Think Twice About REZI?
- 7.5% annual revenue growth over the last five years was slower than its industrials peers
- Free cash flow margin shrank by 20.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Waning returns on capital imply its previous profit engines are losing steam
Resideo is trading at $32.41 per share, or 10x forward P/E. To fully understand why you should be careful with REZI, check out our full research report (it’s free).
Two Small-Cap Stocks to Watch:
CarGurus (CARG)
Market Cap: $2.50 billion
Bringing transparency to a sometimes opaque process, CarGurus (NASDAQ: CARG) is a digital marketplace where auto dealers can connect with potential customers and where car buyers can browse, purchase, and obtain financing.
Why Are We Positive on CARG?
- Prominent and differentiated platform leads to a best-in-class gross margin of 88.4%
- Earnings per share grew by 32.5% annually over the last three years and trumped its peers
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its improved cash conversion implies it’s becoming a less capital-intensive business
At $34.91 per share, CarGurus trades at 10.2x forward EV/EBITDA. Is now the right time to buy? See for yourself in our full research report, it’s free.
EXL (EXLS)
Market Cap: $4.37 billion
Originally founded as an outsourcing company in 1999 before evolving into a technology-focused enterprise, EXL (NASDAQ: EXLS) provides data analytics and AI-powered digital operations solutions that help businesses transform their operations and make better decisions.
Why Will EXLS Outperform?
- Annual revenue growth of 17.2% over the past five years was outstanding, reflecting market share gains this cycle
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 21.4% exceeded its revenue gains over the last five years
- Free cash flow margin expanded by 5.2 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
EXL’s stock price of $27.58 implies a valuation ratio of 11.9x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
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%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. 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 (+1,326% between June 2020 and June 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.
