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. That said, here is one small-cap stock that could be the next big thing and two that may have trouble.

Two Small-Cap Stocks to Sell:

Sprout Social (SPT)

Market Cap: $1.15 billion

Founded by Justyn Howard and Aaron Rankin in 2010, Sprout Social (NASDAQ: SPT) provides a software as a service platform that companies can use to schedule and respond to posts on major social media networks like Twitter, Facebook, Instagram, Youtube and LinkedIn.

Why Is SPT Not Exciting?

1. Historical operating margin losses show it had an inefficient cost structure while scaling
2. Low free cash flow margin of 7.2% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

Sprout Social is trading at $19.85 per share, or 2.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than SPT.

Kratos (KTOS)

Market Cap: $7.79 billion

Established with a commitment to supporting national security, Kratos (NASDAQ: KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.

Why Does KTOS Give Us Pause?

1. Free cash flow margin shrank by 7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $48.94 per share, Kratos trades at 85.2x forward P/E. Read our free research report to see why you should think twice about including KTOS in your portfolio.

One Small-Cap Stock to Watch:

Match Group (MTCH)

Market Cap: $8.24 billion

Originally started as a dial-up service before widespread internet adoption, Match (NASDAQ: MTCH) was an early innovator in online dating and today has a portfolio of apps including Tinder, Hinge, Archer, and OkCupid.

Why Are We Positive On MTCH?

1. Customers are spending more money on its platform as its average revenue per user has increased by 9.5% annually over the last two years
2. Performance over the past three years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
3. Strong free cash flow margin of 26% enables it to reinvest or return capital consistently

Match Group’s stock price of $33.57 implies a valuation ratio of 7.2x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Strong Momentum Stocks for this week. 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

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