Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.

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 be the next big thing and two best left ignored.

Two Small-Cap Stocks to Sell:

Semtech (SMTC)

Market Cap: $5.95 billion

A public company since the late 1960s, Semtech (NASDAQ: SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.

Why Do We Think SMTC Will Underperform?

1. Persistent operating margin losses and eroding margin over the last five years point to its preference for growth over profits
2. Low free cash flow margin of 6.5% declined over the last five years as its investments ramped, giving it little breathing room
3. Push for growth has led to negative returns on capital, signaling value destruction, and its decreasing returns suggest its historical profit centers are aging

Semtech’s stock price of $68.59 implies a valuation ratio of 38.2x forward P/E. If you’re considering SMTC for your portfolio, see our FREE research report to learn more.

Guess (GES)

Market Cap: $877.6 million

Flexing the iconic upside-down triangle logo with a question mark, Guess (NYSE: GES) is a global fashion brand known for its trendy clothing, accessories, and denim wear.

Why Should You Dump GES?

1. 7.3% annual revenue growth over the last two years was slower than its consumer discretionary peers
2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3. 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Guess is trading at $17 per share, or 11.6x forward P/E. Dive into our free research report to see why there are better opportunities than GES.

One Small-Cap Stock to Watch:

Webster Financial (WBS)

Market Cap: $9.04 billion

Founded during the Great Depression in 1935 and evolving into a major Northeastern financial institution, Webster Financial (NYSE: WBS) is a bank holding company that provides commercial banking, consumer banking, and employee benefits solutions through its Webster Bank and HSA Bank division.

Why Could WBS Be a Winner?

1. Market share has increased this cycle as its 22.6% annual net interest income growth over the last five years was exceptional
2. Non-interest operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
3. Earnings per share grew by 16.8% annually over the last five years, massively outpacing its peers

At $54.50 per share, Webster Financial trades at 1x forward P/B. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .

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 5 Growth Stocks for this month. 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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