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.
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 are two small-cap stocks that could be the next big thing and one that may have trouble.
One Small-Cap Stock to Sell:
Krispy Kreme (DNUT)
Market Cap: $621.5 million
Famous for its Original Glazed doughnuts and parent company of Insomnia Cookies, Krispy Kreme (NASDAQ: DNUT) is one of the most beloved and well-known fast-food chains in the world.
Why Do We Avoid DNUT?
- Earnings per share have contracted by 38.7% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
- Increased cash burn over the last year raises questions about the return timeline for its investments
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Krispy Kreme’s stock price of $3.69 implies a valuation ratio of 5x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than DNUT.
Two Small-Cap Stocks to Watch:
Grand Canyon Education (LOPE)
Market Cap: $5.74 billion
Founded in 1949, Grand Canyon Education (NASDAQ: LOPE) is an educational services provider known for its operation at Grand Canyon University.
Why Are We Fans of LOPE?
- Excellent operating margin of 26.8% highlights the efficiency of its business model
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures, and its rising returns show it’s making even more lucrative bets
- Improving returns on capital reflect management’s ability to monetize investments
At $208.63 per share, Grand Canyon Education trades at 21.9x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Watts Water Technologies (WTS)
Market Cap: $9.11 billion
Founded in 1874, Watts Water (NYSE: WTS) specializes in manufacturing water products and systems for residential, commercial, and industrial applications globally.
Why Does WTS Stand Out?
- Offerings are difficult to replicate at scale and lead to a best-in-class gross margin of 45.5%
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Share repurchases over the last five years enabled its annual earnings per share growth of 20.7% to outpace its revenue gains
Watts Water Technologies is trading at $273.07 per share, or 26.9x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.
Stocks We Like Even More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 9 Market-Beating Stocks. 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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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