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 may have trouble.
Two Small-Cap Stocks to Sell:
ThredUp (TDUP)
Market Cap: $369 million
Founded to revolutionize thrifting, ThredUp (NASDAQ:TDUP) is a leading online fashion resale marketplace offering a wide selection of gently-used clothing and accessories.
Why Do We Steer Clear of TDUP?
- Demand for its offerings was relatively low as its number of orders has underwhelmed
- Poor expense management has led to operating margin losses
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
ThredUp is trading at $2.78 per share, or 21x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why TDUP doesn’t pass our bar.
Valaris (VAL)
Market Cap: $5.96 billion
Operating the world's largest fleet of offshore drilling rigs across six continents, Valaris (NYSE:VAL) provides offshore drilling rigs and crews to oil and gas companies exploring and producing in deep waters and shallow seas.
Why Are We Cautious About VAL?
- Sales tumbled by 5% annually over the last ten years, showing market trends are working against it during this cycle
- Costly operations and weak unit economics result in an inferior gross margin of 21.5% that must be offset through higher production volumes
- Negative free cash flow raises questions about the return timeline for its investments
At $83.98 per share, Valaris trades at 14.4x forward P/E. If you’re considering VAL for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Watch:
Skyward Specialty Insurance (SKWD)
Market Cap: $2.57 billion
Founded in 2006 to serve markets where standard insurance coverage falls short, Skyward Specialty Insurance (NASDAQ:SKWD) provides customized commercial property, casualty, and health insurance solutions for underserved or specialized market niches.
Why Are We Positive on SKWD?
- Net premiums earned expanded by 29.5% annually over the last two years, demonstrating exceptional market penetration this cycle
- Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share
- Annual book value per share growth of 25.8% over the past two years was outstanding, reflecting strong capital accumulation this cycle
Skyward Specialty Insurance’s stock price of $59.45 implies a valuation ratio of 1.9x forward P/B. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.