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.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here is one small-cap stock that could be the next big thing and two best left ignored.
Two Small-Cap Stocks to Sell:
Sirius XM (SIRI)
Market Cap: $7.96 billion
Known for its commercial-free music channels, Sirius XM (NASDAQ: SIRI) is a broadcasting company that provides satellite radio and online radio services across North America.
Why Do We Steer Clear of SIRI?
- Sales trends were unexciting over the last five years as its 1.3% annual growth was below the typical consumer discretionary company
- Free cash flow margin is on track to jump by 1.3 percentage points next year, meaning the company will have more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Sirius XM is trading at $23.67 per share, or 7.6x forward P/E. If you’re considering SIRI for your portfolio, see our FREE research report to learn more.
Amphastar Pharmaceuticals (AMPH)
Market Cap: $927.8 million
Founded in 1996 and known for its expertise in complex drug formulations, Amphastar Pharmaceuticals (NASDAQ: AMPH) develops and manufactures technically challenging injectable and inhalation medications, including both generic and proprietary pharmaceutical products.
Why Does AMPH Worry Us?
- Annual revenue growth of 5.4% over the last two years was below our standards for the healthcare sector
- Smaller revenue base of $719.9 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Costs have risen faster than its revenue over the last two years, causing its adjusted operating margin to decline by 6.4 percentage points
At $20.47 per share, Amphastar Pharmaceuticals trades at 6.1x forward P/E. Check out our free in-depth research report to learn more about why AMPH doesn’t pass our bar.
One Small-Cap Stock to Buy:
Federal Signal (FSS)
Market Cap: $6.65 billion
Developing sirens that warned of air raid attacks or fallout during the Cold War, Federal Signal (NYSE: FSS) provides safety and emergency equipment for government agencies, municipalities, and industrial companies.
Why Will FSS Beat the Market?
- Annual revenue growth of 14% over the past five years was outstanding, reflecting market share gains this cycle
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 28% over the last two years outstripped its revenue performance
- Free cash flow margin grew by 5.1 percentage points over the last five years, giving the company more chips to play with
Federal Signal’s stock price of $109.25 implies a valuation ratio of 23.3x forward P/E. Is now a good time to buy? Find out in our full 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 meeting near-term momentum — both boxes checked at the same time.
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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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
