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.
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 that could be down big.
Two Small-Cap Stocks to Sell:
Alarm.com (ALRM)
Market Cap: $2.69 billion
Founded in 2000 as a business unit within MicroStrategy, Alarm.com (NASDAQ: ALRM) is a software-as-a-service platform that enables users to control their security systems and smart home appliances from a single app.
Why Are We Cautious About ALRM?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 6.6% underwhelmed
- Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its three-year trend
- Steep infrastructure costs and weaker unit economics for a software company are reflected in its low gross margin of 65.7%
At $53.73 per share, Alarm.com trades at 3.3x forward price-to-sales. Read our free research report to see why you should think twice about including ALRM in your portfolio.
Luxfer (LXFR)
Market Cap: $316.6 million
With its magnesium alloys used in the construction of the famous Spirit of St. Louis aircraft, Luxfer (NYSE: LXFR) offers specialized materials, components, and gas containment devices to various industries.
Why Are We Out on LXFR?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.9% annually over the last two years
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.8 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
Luxfer is trading at $12.07 per share, or 10.8x forward P/E. Check out our free in-depth research report to learn more about why LXFR doesn’t pass our bar.
One Small-Cap Stock to Watch:
First Busey (BUSE)
Market Cap: $1.97 billion
Tracing its roots back to 1868 during America's post-Civil War reconstruction era, First Busey (NASDAQ: BUSE) is a bank holding company that provides commercial and retail banking, wealth management, and payment technology solutions across Illinois, Missouri, Florida, and Indiana.
Why Are We Positive On BUSE?
- Impressive 12.9% annual net interest income growth over the last five years indicates it’s winning market share this cycle
- Demand for the next 12 months is expected to accelerate above its five-year trend as Wall Street forecasts robust net interest income growth of 50.7%
- Annual tangible book value per share growth of 19% over the last two years was superb and indicates its capital strength increased during this cycle
First Busey’s stock price of $22.13 implies a valuation ratio of 0.9x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.
Don’t let fear keep you from great opportunities and take a look at 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.
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