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. Keeping that in mind, 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:
Carter's (CRI)
Market Cap: $1.15 billion
Rumored to sell more than 10 products for every child born in the United States, Carter's (NYSE:CRI) is an American designer and marketer of children's apparel.
Why Do We Avoid CRI?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
- Free cash flow margin is forecasted to shrink by 1.3 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Carter’s stock price of $31.32 implies a valuation ratio of 8.9x forward P/E. Read our free research report to see why you should think twice about including CRI in your portfolio.
Prosperity Bancshares (PB)
Market Cap: $7.96 billion
With a network of banking centers spanning the Lone Star State and beyond, Prosperity Bancshares (NYSE:PB) operates full-service banking locations throughout Texas and Oklahoma, offering a wide range of financial products and services to businesses and consumers.
Why Are We Bearish on PB?
- Net interest income trends were unexciting over the last five years as its 3.4% annual growth was below the typical banking firm
- Incremental sales over the last five years were less profitable as its 1% annual earnings per share growth lagged its revenue gains
- Capital strength will likely plateau over the next 12 months as Wall Street expects flat tangible book value per share
At $65.74 per share, Prosperity Bancshares trades at 0.8x forward P/B. If you’re considering PB for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Buy:
Clover Health (CLOV)
Market Cap: $2.29 billion
Founded in 2014 to improve healthcare for America's seniors through technology, Clover Health (NASDAQ:CLOV) provides Medicare Advantage plans for seniors with a focus on affordable care and uses its proprietary Clover Assistant software to help physicians manage patient care.
Why Do We Love CLOV?
- Annual revenue growth of 36.9% over the past two years was outstanding, reflecting market share gains this cycle
- Earnings per share grew by 15.2% annually over the last five years, massively outpacing its peers
- Free cash flow turned positive over the last five years, indicating the company has achieved financial self-sustainability
Clover Health is trading at $4.34 per share, or 28.8x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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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-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.