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. That said, here is one small-cap stock that could amplify your portfolio’s returns and two that could be down big.
Two Small-Cap Stocks to Sell:
National Vision (EYE)
Market Cap: $2.23 billion
Operating under multiple brands, National Vision (NYSE: EYE) sells optical products such as eyeglasses and provides optical services such as eye exams.
Why Do We Avoid EYE?
- Annual sales declines of 1.6% for the past three years show its products struggled to connect with the market
- Reduction in its number of stores signals a focus on profitability through targeted consolidation
- Underwhelming 3.1% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
At $28.38 per share, National Vision trades at 31.3x forward P/E. If you’re considering EYE for your portfolio, see our FREE research report to learn more.
The Cheesecake Factory (CAKE)
Market Cap: $2.51 billion
Celebrated for its delicious (and free) brown bread, gigantic portions, and delectable desserts, Cheesecake Factory (NASDAQ: CAKE) is an iconic American restaurant chain that also owns and operates a portfolio of separate restaurant brands.
Why Are We Cautious About CAKE?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Estimated sales growth of 3.9% for the next 12 months implies demand will slow from its six-year trend
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
The Cheesecake Factory’s stock price of $50.87 implies a valuation ratio of 12.8x forward P/E. To fully understand why you should be careful with CAKE, check out our full research report (it’s free for active Edge members).
One Small-Cap Stock to Watch:
Leonardo DRS (DRS)
Market Cap: $8.83 billion
Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ: DRS) is a provider of defense systems, electronics, and military support services.
Why Do We Like DRS?
- Impressive 14.5% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Average backlog growth of 44.8% over the past two years shows it has a steady sales pipeline that will drive future orders
- Earnings per share grew by 19.5% annually over the last two years and trumped its peers
Leonardo DRS is trading at $33.17 per share, or 27.6x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 6 Stocks for this week. 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.
