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. That said, here is one small-cap stock that could amplify your portfolio’s returns and two that may have trouble.

Two Small-Cap Stocks to Sell:

1-800-FLOWERS (FLWS)

Market Cap: $342.2 million

Founded in 1976, 1-800-FLOWERS (NASDAQ: FLWS) is an online retailer of flowers, gifts, and gourmet foods, serving customers globally.

Why Do We Pass on FLWS?

1. Products and services aren't resonating with the market as its revenue declined by 9.7% annually over the last two years
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 29.6% annually while its revenue grew
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

1-800-FLOWERS’s stock price of $5.48 implies a valuation ratio of 17x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than FLWS.

Timken (TKR)

Market Cap: $4.33 billion

Established after the founder noticed the difficulty freight wagons had making sharp turns, Timken (NYSE: TKR) is a provider of industrial parts used across various sectors.

Why Are We Out on TKR?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Earnings per share fell by 2.9% annually over the last two years while its revenue was flat, showing each sale was less profitable
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.3 percentage points

Timken is trading at $63.30 per share, or 9.7x forward price-to-earnings. To fully understand why you should be careful with TKR, check out our full research report (it’s free).

One Small-Cap Stock to Buy:

Liquidity Services (LQDT)

Market Cap: $953.5 million

Powering what it calls the "circular economy" with over 5.5 million registered buyers across its platforms, Liquidity Services (NASDAQ: LQDT) operates online marketplaces that connect buyers and sellers of surplus assets, from consumer returns to industrial equipment to government property.

Why Are We Bullish on LQDT?

1. Annual revenue growth of 20.4% over the past two years was outstanding, reflecting market share gains this cycle
2. Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
3. Rising returns on capital show management is finding more attractive investment opportunities

At $31 per share, Liquidity Services trades at 17.6x forward EV-to-EBITDA. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

Stocks We Like Even More

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.