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. Keeping that in mind, here is one small-cap stock that could be the next big thing and two best left ignored.
Two Small-Cap Stocks to Sell:
Redwire (RDW)
Market Cap: $2.26 billion
Based in Jacksonville, Florida, Redwire (NYSE: RDW) is a provider of systems and components used in space infrastructure.
Why Are We Wary of RDW?
- Issuance of new shares over the last four years caused its earnings per share to fall by 38.9% annually while its revenue grew
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Redwire is trading at $16.09 per share, or 19.9x forward EV-to-EBITDA. If you’re considering RDW for your portfolio, see our FREE research report to learn more.
HNI (HNI)
Market Cap: $2.16 billion
With roots dating back to 1944 and a significant acquisition of Kimball International in 2023, HNI (NYSE: HNI) manufactures and sells office furniture systems, seating, and storage solutions, as well as residential fireplaces and heating products.
Why Does HNI Worry Us?
- Sales trends were unexciting over the last five years as its 2.7% annual growth was below the typical business services company
- Earnings per share lagged its peers over the last five years as they only grew by 2.3% annually
- 3.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
HNI’s stock price of $46.40 implies a valuation ratio of 13.1x forward P/E. To fully understand why you should be careful with HNI, check out our full research report (it’s free).
One Small-Cap Stock to Watch:
BrightSpring Health Services (BTSG)
Market Cap: $3.92 billion
Founded in 1974, BrightSpring Health Services (NASDAQ: BTSG) offers home health care, hospice, neuro-rehabilitation, and pharmacy services.
Why Is BTSG Interesting?
- Impressive 20.9% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
- Annual earnings per share growth of 6.9% over the last three years modestly outpaced its peers
At $22.48 per share, BrightSpring Health Services trades at 34.9x 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
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 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 Kadant (+351% 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
