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 100 bagger and two that may have trouble.
Two Small-Cap Stocks to Sell:
Commerce (CMRC)
Market Cap: $236.8 million
As a founding member of the MACH Alliance advocating for modern tech standards, Commerce (NASDAQ: CMRC) provides a SaaS platform that enables businesses to build and manage online stores, connect with marketplaces, and integrate with point-of-sale systems.
Why Do We Avoid CMRC?
- ARR growth averaged a weak 2.5% over the last year, suggesting that competition is pulling some attention away from its software
- Estimated sales growth of 3.3% for the next 12 months is soft and implies weaker demand
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 3.2 percentage points
Commerce is trading at $3.03 per share, or 0.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than CMRC.
Kontoor Brands (KTB)
Market Cap: $3.77 billion
Founded in 2019 after separating from VF Corporation, Kontoor Brands (NYSE: KTB) is a clothing company known for its high-quality denim products.
Why Are We Out on KTB?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Earnings per share lagged its peers over the last five years as they only grew by 7.6% annually
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $68.15 per share, Kontoor Brands trades at 12.7x forward P/E. Check out our free in-depth research report to learn more about why KTB doesn’t pass our bar.
One Small-Cap Stock to Buy:
Alignment Healthcare (ALHC)
Market Cap: $2.95 billion
Founded in 2013 with a mission to transform healthcare for seniors, Alignment Healthcare (NASDAQ: ALHC) provides Medicare Advantage health plans for seniors with features like concierge services, transportation benefits, and technology-driven care coordination.
Why Should You Buy ALHC?
- Annual revenue growth of 45.4% over the last two years was superb and indicates its market share increased during this cycle
- Earnings per share grew by 28.5% annually over the last four years and trumped its peers
- Free cash flow margin jumped by 11 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Alignment Healthcare’s stock price of $14.35 implies a valuation ratio of 14.7x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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 (+1,326% 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.
