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. Keeping that in mind, here is one small-cap stock that could be the next big thing and two best left ignored.

Two Small-Cap Stocks to Sell:

Dayforce (DAY)

Market Cap: $9.33 billion

Founded in 1992 as Ceridian, an outsourced payroll processor and transformed after the 2012 acquisition of Dayforce, Dayforce (NYSE: DAY) is a provider of cloud based payroll and HR software targeted at mid-sized businesses.

Why Are We Cautious About DAY?

1. Revenue increased by 18.7% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
2. Sky-high servicing costs result in an inferior gross margin of 50.3% that must be offset through increased usage
3. Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 3.4 percentage points

Dayforce is trading at $58.33 per share, or 4.8x forward price-to-sales. If you’re considering DAY for your portfolio, see our FREE research report to learn more.

Matthews (MATW)

Market Cap: $615.2 million

Originally a death care company, Matthews International (NASDAQ: MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.

Why Do We Avoid MATW?

1. Products and services aren't resonating with the market as its revenue declined by 2.9% annually over the last two years
2. Earnings per share fell by 12% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Low free cash flow margin of 0.1% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

At $20.22 per share, Matthews trades at 5.3x forward EV-to-EBITDA. To fully understand why you should be careful with MATW, check out our full research report (it’s free).

One Small-Cap Stock to Watch:

Light & Wonder (LNW)

Market Cap: $6.80 billion

With names as crazy as Ultimate Fire Link Power 4 for its products, Light & Wonder (NASDAQ: LNW) is a gaming company supplying the casino industry with slot machines, table games, and digital games.

Why Does LNW Stand Out?

1. Highly efficient business model is illustrated by its impressive 20.2% operating margin
2. Earnings per share have outperformed its peers over the last five years, increasing by 42.1% annually
3. Rising returns on capital show management is making relatively better investments

Light & Wonder’s stock price of $81.76 implies a valuation ratio of 13.8x forward P/E. Is now the time to initiate a position? Find out 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 9 Market-Beating Stocks. 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free.