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.

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 is one small-cap stock that could be the next 100 bagger and two that may have trouble.

Two Small-Cap Stocks to Sell:

Designer Brands (DBI)

Market Cap: $142 million

Founded in 1969 as a shoe importer and distributor, Designer Brands (NYSE: DBI) is an American discount retailer focused on footwear and accessories.

Why Should You Dump DBI?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Underwhelming -0.3% return on capital reflects management’s difficulties in finding profitable growth opportunities
3. High net-debt-to-EBITDA ratio of 9× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Designer Brands’s stock price of $2.91 implies a valuation ratio of 5.8x forward price-to-earnings. Check out our free in-depth research report to learn more about why DBI doesn’t pass our bar.

iRhythm (IRTC)

Market Cap: $3.15 billion

Pioneering the shift from bulky, short-term heart monitors to sleek, wire-free patches, iRhythm Technologies (NASDAQ: IRTC) provides wearable cardiac monitoring devices and AI-powered analysis services that help physicians detect and diagnose heart rhythm disorders.

Why Are We Hesitant About IRTC?

1. Issuance of new shares over the last five years caused its earnings per share to fall by 7.5% annually while its revenue grew
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $98.50 per share, iRhythm trades at 60.5x forward EV-to-EBITDA. To fully understand why you should be careful with IRTC, check out our full research report (it’s free).

One Small-Cap Stock to Watch:

Integral Ad Science (IAS)

Market Cap: $1.15 billion

Founded in 2009, Integral Ad Science (NASDAQ: IAS) provides digital advertising verification and optimization solutions, ensuring that ads are viewable by real people in brand-safe environments across various platforms and devices.

Why Do We Like IAS?

1. Software platform has product-market fit given the rapid recovery of its customer acquisition costs
2. Disciplined cost controls and effective management resulted in a strong trailing 12-month operating margin of 11.4%, and its rise over the last year was fueled by some leverage on its fixed costs
3. Robust free cash flow margin of 21.9% gives it many options for capital deployment

Integral Ad Science is trading at $6.99 per share, or 2x forward price-to-sales. Is now a good time to buy? See for yourself in our full research report, it’s free.

Stocks We Like Even More

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.