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.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. 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:

Genesco (GCO)

Market Cap: $228.9 million

Spanning a broad range of styles, brands, and prices, Genesco (NYSE: GCO) sells footwear, apparel, and accessories through multiple brands and banners.

Why Do We Steer Clear of GCO?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Genesco’s stock price of $21.24 implies a valuation ratio of 13.5x forward P/E. Dive into our free research report to see why there are better opportunities than GCO.

Napco (NSSC)

Market Cap: $1.01 billion

Protecting everything from schools to government facilities since 1969, Napco Security Technologies (NASDAQ: NSSC) manufactures electronic security devices, access control systems, and communication services for intrusion and fire alarm systems.

Why Are We Hesitant About NSSC?

1. Sales trends were unexciting over the last two years as its 3.7% annual growth was below the typical business services company
2. Modest revenue base of $181.2 million gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Demand will likely fall over the next 12 months as Wall Street expects flat revenue

Napco is trading at $27.84 per share, or 24.3x forward P/E. Check out our free in-depth research report to learn more about why NSSC doesn’t pass our bar.

One Small-Cap Stock to Watch:

Preferred Bank (PFBC)

Market Cap: $998.6 million

Founded in 1991 with a focus on serving the Pacific Rim community in Southern California, Preferred Bank (NASDAQ: PFBC) is a commercial bank that provides banking products and services to small and mid-sized businesses, entrepreneurs, real estate developers, and high net worth individuals.

Why Does PFBC Stand Out?

1. Unique value proposition resonates with borrowers, as seen in its above-market 10.7% annual net interest income growth over the last four years
2. Share repurchases have amplified shareholder returns as its annual earnings per share growth of 13.4% exceeded its revenue gains over the last five years
3. Balance sheet strength has increased this cycle as its 13.2% annual tangible book value per share growth over the last five years was exceptional

At $80.36 per share, Preferred Bank trades at 1.3x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out 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-small-cap company Comfort Systems (+782% 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