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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, 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:
Penguin Solutions (PENG)
Market Cap: $2.94 billion
Based in the US, Penguin Solutions (NASDAQ: PENG) is a diversified semiconductor company offering memory, digital, and LED products.
Why Are We Bearish on PENG?
- Sales trends were unexciting over the last five years as its 2.5% annual growth was below the typical semiconductor company
- Gross margin of 28.3% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3% for the last two years
At $57.32 per share, Penguin Solutions trades at 17.4x forward P/E. Read our free research report to see why you should think twice about including PENG in your portfolio.
ArcBest (ARCB)
Market Cap: $3.03 billion
Historically owning furniture, banking, and other subsidiaries, ArcBest (NASDAQ: ARCB) offers full-truckload, less-than-truckload, and intermodal deliveries of freight.
Why Should You Sell ARCB?
- Weak unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- Earnings per share fell by 2.7% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
ArcBest is trading at $135.78 per share, or 16.8x forward P/E. To fully understand why you should be careful with ARCB, check out our full research report (it’s free).
One Small-Cap Stock to Watch:
Coastal Financial (CCB)
Market Cap: $792.7 million
Pioneering the intersection of traditional banking and financial technology in the Pacific Northwest, Coastal Financial (NASDAQ: CCB) operates as a bank holding company that provides traditional banking services and Banking-as-a-Service (BaaS) solutions to consumers and businesses.
Why Does CCB Stand Out?
- Impressive 37.2% annual net interest income growth over the last five years indicates it’s winning market share this cycle
- Differentiated product suite leads to a best-in-class net interest margin of 7.2%
- Anticipated efficiency ratio improvement of -6 percentage points over the next year signals it will gain leverage on its fixed costs and become more productive
Coastal Financial’s stock price of $52.21 implies a valuation ratio of 1.5x forward P/B. Is now a good time to buy? See for yourself in our in-depth 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-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
