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. 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:
Flowers Foods (FLO)
Market Cap: $1.65 billion
With Wonder Bread as its premier brand, Flowers Foods (NYSE: FLO) is a packaged foods company that focuses on bakery products such as breads, buns, and cakes.
Why Do We Pass on FLO?
- Shrinking unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Forecasted revenue decline of 1.9% for the upcoming 12 months implies demand will fall off a cliff
- Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 21.7% annually
At $7.63 per share, Flowers Foods trades at 9.1x forward P/E. Check out our free in-depth research report to learn more about why FLO doesn’t pass our bar.
Choice Hotels (CHH)
Market Cap: $4.84 billion
With almost 100% of its properties under franchise agreements, Choice Hotels (NYSE: CHH) is a hotel franchisor known for its diverse brand portfolio including Comfort Inn, Quality Inn, and Clarion.
Why Do We Think CHH Will Underperform?
- Softer revenue per room over the past two years suggests it might have to invest in new amenities such as restaurants and bars to attract customers
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8.8% for the last two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Choice Hotels is trading at $111.19 per share, or 15.4x forward P/E. Dive into our free research report to see why there are better opportunities than CHH.
One Small-Cap Stock to Watch:
Boot Barn (BOOT)
Market Cap: $5.31 billion
With a strong store presence in Texas, California, Florida, and Oklahoma, Boot Barn (NYSE: BOOT) is a western-inspired apparel and footwear retailer.
Why Do We Like BOOT?
- Offensive push to build new stores and attack its untapped market opportunities is backed by its same-store sales growth
- Brick-and-mortar locations are witnessing elevated demand as their same-store sales growth averaged 6.3% over the past two years
- Free cash flow margin jumped by 5.6 percentage points over the last year, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Boot Barn’s stock price of $175.17 implies a valuation ratio of 20.8x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
