Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.

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 be the next big thing and two that could be down big.

Two Small-Cap Stocks to Sell:

Alarm.com (ALRM)

Market Cap: $2.69 billion

Founded in 2000 as a business unit within MicroStrategy, Alarm.com (NASDAQ: ALRM) is a software-as-a-service platform that enables users to control their security systems and smart home appliances from a single app.

Why Are We Cautious About ALRM?

1. Customers had second thoughts about committing to its platform over the last year as its average billings growth of 6.6% underwhelmed
2. Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its three-year trend
3. Steep infrastructure costs and weaker unit economics for a software company are reflected in its low gross margin of 65.7%

At $53.73 per share, Alarm.com trades at 3.3x forward price-to-sales. Read our free research report to see why you should think twice about including ALRM in your portfolio.

Luxfer (LXFR)

Market Cap: $316.6 million

With its magnesium alloys used in the construction of the famous Spirit of St. Louis aircraft, Luxfer (NYSE: LXFR) offers specialized materials, components, and gas containment devices to various industries.

Why Are We Out on LXFR?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.9% annually over the last two years
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.8 percentage points
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Luxfer is trading at $12.07 per share, or 10.8x forward P/E. Check out our free in-depth research report to learn more about why LXFR doesn’t pass our bar.

One Small-Cap Stock to Watch:

First Busey (BUSE)

Market Cap: $1.97 billion

Tracing its roots back to 1868 during America's post-Civil War reconstruction era, First Busey (NASDAQ: BUSE) is a bank holding company that provides commercial and retail banking, wealth management, and payment technology solutions across Illinois, Missouri, Florida, and Indiana.

Why Are We Positive On BUSE?

1. Impressive 12.9% annual net interest income growth over the last five years indicates it’s winning market share this cycle
2. Demand for the next 12 months is expected to accelerate above its five-year trend as Wall Street forecasts robust net interest income growth of 50.7%
3. Annual tangible book value per share growth of 19% over the last two years was superb and indicates its capital strength increased during this cycle

First Busey’s stock price of $22.13 implies a valuation ratio of 0.9x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free.

Stocks We Like Even More

When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at 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 Kadant (+351% five-year return). Find your next big winner with StockStory today for free.

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