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.

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. 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:

Semtech (SMTC)

Market Cap: $3.63 billion

A public company since the late 1960s, Semtech (NASDAQ: SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.

Why Is SMTC Risky?

1. Historical operating margin losses have deepened over the last five years as it prioritized growth over profits
2. Free cash flow margin dropped by 6.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Push for growth has led to negative returns on capital, signaling value destruction, and its shrinking returns suggest its past profit sources are losing steam

Semtech’s stock price of $41.53 implies a valuation ratio of 24.2x forward P/E. To fully understand why you should be careful with SMTC, check out our full research report (it’s free).

MDU Resources (MDU)

Market Cap: $3.30 billion

Founded to provide electricity to towns in Minnesota, MDU Resources (NYSE: MDU) provides products and services in the utilities and construction materials industries.

Why Do We Steer Clear of MDU?

1. Sales tumbled by 25.9% annually over the last five years, showing market trends are working against its favor during this cycle
2. Earnings per share have contracted by 4.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate

MDU Resources is trading at $16.14 per share, or 15.6x forward P/E. Check out our free in-depth research report to learn more about why MDU doesn’t pass our bar.

One Small-Cap Stock to Watch:

Confluent (CFLT)

Market Cap: $8.15 billion

Started in 2014 by the team of engineers at LinkedIn who originally built it as an internal tool, Confluent (NASDAQ: CFLT) provides infrastructure software for organizations that makes it easy and fast to collect and move large amounts of data between different systems.

Why Could CFLT Be a Winner?

1. Billings have averaged 27.9% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
2. Forecasted revenue growth of 17.4% for the next 12 months indicates its momentum over the last three years is sustainable
3. Healthy unit economics are reflected in its 73.9% gross margin and give it more money to invest in marketing and R&D

At $23.78 per share, Confluent trades at 6.7x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% 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