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.

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. Keeping that in mind, here is one small-cap stock that could be the next 100 bagger and two that could be down big.

Two Small-Cap Stocks to Sell:

Shutterstock (SSTK)

Market Cap: $687.8 million

Originally featuring a library that included many of founder Jon Oringer’s photos, Shutterstock (NYSE: SSTK) is now a digital platform where customers can license and use hundreds of millions of pieces of content.

Why Does SSTK Worry Us?

1. Sales trends were unexciting over the last three years as its 6.5% annual growth was below the typical consumer internet company
2. Earnings per share lagged its peers over the last three years as they only grew by 5.6% annually
3. Free cash flow margin shrank by 25.9 percentage points over the last few years, suggesting the company is consuming more capital to stay competitive

Shutterstock’s stock price of $20 implies a valuation ratio of 2.5x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SSTK.

Albany (AIN)

Market Cap: $2.25 billion

Founded in 1895, Albany (NYSE: AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.

Why Are We Out on AIN?

1. Annual revenue growth of 3.1% over the last five years was below our standards for the industrials sector
2. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 7.8 percentage points
3. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 5% annually

Albany is trading at $72.83 per share, or 18.9x forward price-to-earnings. Read our free research report to see why you should think twice about including AIN in your portfolio.

One Small-Cap Stock to Watch:

Warby Parker (WRBY)

Market Cap: $2.44 billion

Founded in 2010, Warby Parker (NYSE: WRBY) designs, manufactures, and sells eyewear, including prescription glasses, sunglasses, and contact lenses, through its e-commerce platform and physical retail locations.

Why Do We Like WRBY?

1. Rapidly increasing store base reflects a desire to sell in new markets and scale quickly
2. Collection of products is difficult to replicate at scale and leads to a best-in-class gross margin of 55%
3. Free cash flow margin increased by 3.3 percentage points over the last year, giving the company more capital to invest or return to shareholders

At $20.37 per share, Warby Parker trades at 59.3x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.

Stocks We Like Even More

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.