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.
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 100 bagger and two best left ignored.
Two Small-Cap Stocks to Sell:
LKQ (LKQ)
Market Cap: $5.59 billion
A global distributor of vehicle parts and accessories, LKQ (NASDAQ:LKQ) offers its customers a comprehensive selection of high-quality, affordably priced automobile products.
Why Are We Bearish on LKQ?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Low free cash flow margin of 4.8% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
LKQ is trading at $21.86 per share, or 7.6x forward P/E. To fully understand why you should be careful with LKQ, check out our full research report (it’s free).
Live Oak Bancshares (LOB)
Market Cap: $1.61 billion
Founded during the 2008 financial crisis with a vision to reimagine small business banking through technology, Live Oak Bancshares (NYSE:LOB) is a bank holding company that specializes in providing online banking services and SBA-guaranteed loans to small businesses across targeted industries nationwide.
Why Are We Hesitant About LOB?
- Weak unit economics are reflected in its net interest margin of 3.3%, one of the worst among bank companies
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 8.6% annually while its revenue grew
Live Oak Bancshares’s stock price of $34.81 implies a valuation ratio of 1.2x forward P/B. Read our free research report to see why you should think twice about including LOB in your portfolio.
One Small-Cap Stock to Watch:
Grid Dynamics (GDYN)
Market Cap: $636 million
With engineering centers across the Americas, Europe, and India serving Fortune 1000 companies, Grid Dynamics (NASDAQ:GDYN) provides technology consulting, engineering, and analytics services to help large enterprises modernize their technology systems and business processes.
Why Does GDYN Stand Out?
- Impressive 15.2% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Earnings per share have comfortably outperformed the peer group average over the last two years, increasing by 14% annually
- Returns on capital are increasing as management’s prior bets are starting to bear fruit
At $7.84 per share, Grid Dynamics trades at 16.4x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum 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-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.