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 big thing and two best left ignored.
Two Small-Cap Stocks to Sell:
Red Rock Resorts (RRR)
Market Cap: $3.70 billion
Founded in 1976, Red Rock Resorts (NASDAQ: RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.
Why Should You Sell RRR?
- Annual revenue growth of 11.8% over the last five years was below our standards for the consumer discretionary sector
- Low free cash flow margin of 13.8% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Red Rock Resorts’s stock price of $64.25 implies a valuation ratio of 19.4x forward P/E. Read our free research report to see why you should think twice about including RRR in your portfolio.
Proto Labs (PRLB)
Market Cap: $1.90 billion
Pioneering the concept of online quoting and manufacturing for custom prototypes and low-volume production parts, Proto Labs (NYSE: PRLB) offers injection molding, 3D printing, and sheet metal fabrication for manufacturers in various industries.
Why Is PRLB Risky?
- Annual revenue growth of 3.9% over the last two years was below our standards for the industrials sector
- Earnings per share have contracted by 2.9% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- ROIC of -0.9% reflects management’s challenges in identifying attractive investment opportunities
At $79.50 per share, Proto Labs trades at 40.2x forward P/E. If you’re considering PRLB for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Buy:
CSW (CSW)
Market Cap: $4.6 billion
With over two centuries of combined operations manufacturing and supplying, CSW (NYSE: CSW) offers special chemicals, coatings, sealants, and lubricants for various industries.
Why Are We Bullish on CSW?
- Annual revenue growth of 16.9% over the last two years was superb and indicates its market share increased during this cycle
- Excellent operating margin of 18% highlights the efficiency of its business model
- Earnings per share grew by 23.4% annually over the last two years and trumped its peers
CSW is trading at $282.16 per share, or 23x forward P/E. Is now the time to initiate a position? 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 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 Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
