Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.

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. That said, here is one small-cap stock that could be the next 100 bagger and two that may have trouble.

Two Small-Cap Stocks to Sell:

Simpson (SSD)

Market Cap: $7.32 billion

Aiming to build safer and stronger buildings, Simpson (NYSE: SSD) designs and manufactures structural connectors, anchors, and other construction products.

Why Does SSD Give Us Pause?

1. Sales trends were unexciting over the last two years as its 2.6% annual growth was below the typical industrials company
2. Free cash flow margin dropped by 10.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Eroding returns on capital suggest its historical profit centers are aging

Simpson is trading at $175.94 per share, or 20.8x forward P/E. If you’re considering SSD for your portfolio, see our FREE research report to learn more.

Enact Holdings (ACT)

Market Cap: $5.27 billion

Playing a critical role in helping first-time homebuyers access the housing market, Enact Holdings (NASDAQ: ACT) provides private mortgage insurance that enables lenders to offer home loans with lower down payments while protecting against borrower defaults.

Why Are We Wary of ACT?

1. 1.3% annualized net premiums earned growth over the last five years lagged behind its insurance peers
2. Costs have risen faster than its revenue over the last two years, causing its combined ratio to worsen by 15 percentage points
3. Incremental sales over the last two years were less profitable as its 2.9% annual earnings per share growth lagged its revenue gains

At $35.75 per share, Enact Holdings trades at 1x forward P/B. Read our free research report to see why you should think twice about including ACT in your portfolio.

One Small-Cap Stock to Watch:

Bank OZK (OZK)

Market Cap: $5.20 billion

Founded in 1903 and rebranded from Bank of the Ozarks in 2018, Bank OZK (NASDAQ: OZK) is a commercial bank that specializes in real estate lending while offering a full range of banking services to individuals and businesses.

Why Could OZK Be a Winner?

1. Annual net interest income growth of 12.6% over the past five years was outstanding, reflecting market share gains this cycle
2. Earnings growth has massively outpaced its peers over the last two years as its EPS has compounded at 7.8% annually
3. Balance sheet strength has increased this cycle as its 10.5% annual tangible book value per share growth over the last five years was exceptional

Bank OZK’s stock price of $46.20 implies a valuation ratio of 0.9x forward P/B. Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.

Stocks We Like Even More

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound 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

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.