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.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are two small-cap stocks that could be the next big thing and one that could be down big.

One Small-Cap Stock to Sell:

The Pennant Group (PNTG)

Market Cap: $878.7 million

Spun off from The Ensign Group in 2019 to focus on non-skilled nursing healthcare services, Pennant Group (NASDAQ: PNTG) operates home health, hospice, and senior living facilities across 13 western and midwestern states, serving patients of all ages including seniors.

Why Are We Hesitant About PNTG?

1. Modest revenue base of $847.3 million gives it less fixed cost leverage and fewer distribution channels than larger companies
2. Low free cash flow margin of 1.3% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Underwhelming 5.3% return on capital reflects management’s difficulties in finding profitable growth opportunities

The Pennant Group is trading at $25.38 per share, or 19.5x forward P/E. Dive into our free research report to see why there are better opportunities than PNTG.

Two Small-Cap Stocks to Watch:

Dutch Bros (BROS)

Market Cap: $6.56 billion

Started in 1992 by two brothers as a single pushcart, Dutch Bros (NYSE: BROS) is a dynamic coffee chain that’s captured the hearts of coffee enthusiasts across the United States.

Why Is BROS a Good Business?

1. Fast expansion of new restaurants to reach markets with few or no locations is justified by its same-store sales growth
2. Customers are lining up to eat at its restaurants as the company’s same-store sales growth averaged 5.7% over the past two years
3. Free cash flow margin jumped by 5.1 percentage points over the last year, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends

Dutch Bros’s stock price of $51.32 implies a valuation ratio of 64.8x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.

First Advantage (FA)

Market Cap: $2.18 billion

Processing approximately 100 million background checks annually across more than 200 countries and territories, First Advantage (NASDAQ: FA) provides employment background screening, identity verification, and compliance solutions to help companies manage hiring risks.

Why Are We Positive On FA?

1. Impressive 37.4% annual revenue growth over the last two years indicates it’s winning market share this cycle
2. Projected revenue growth of 9.4% for the next 12 months suggests its momentum from the last two years will persist
3. Adjusted operating margin expanded by 2.5 percentage points over the last five years as it scaled and became more efficient

At $12.50 per share, First Advantage trades at 11.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.

Stocks We Like Even More

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. Check out our 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 244% over the last five years (as of June 30, 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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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