Small-cap stocks can be incredibly lucrative investments because their lack of analyst coverage leads to frequent mispricings. However, these businesses (and their stock prices) often stay small because their subscale operations make it harder to expand their competitive moats.
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 100 bagger and two best left ignored.
Two Small-Cap Stocks to Sell:
Sleep Number (SNBR)
Market Cap: $89.34 million
Known for mattresses that can be adjusted with regards to firmness, Sleep Number (NASDAQ: SNBR) manufactures and sells its own brand of bedding products such as mattresses, bed frames, and pillows.
Why Do We Steer Clear of SNBR?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Persistent operating margin losses and eroding margin over the last year point to growing market pressures and a poorly managed expense base
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Sleep Number is trading at $3.88 per share, or 1.1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SNBR doesn’t pass our bar.
OPENLANE (KAR)
Market Cap: $2.69 billion
Facilitating the sale of approximately 1.3 million used vehicles in 2023, OPENLANE (NYSE: KAR) operates digital marketplaces that connect sellers and buyers of used vehicles across North America and Europe, facilitating wholesale transactions.
Why Do We Think Twice About KAR?
- Annual sales declines of 4% for the past five years show its products and services struggled to connect with the market during this cycle
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $25.37 per share, OPENLANE trades at 18.8x forward P/E. Dive into our free research report to see why there are better opportunities than KAR.
One Small-Cap Stock to Watch:
Parsons (PSN)
Market Cap: $8.80 billion
Delivering aerospace technology during the Cold War-era, Parsons (NYSE: PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.
Why Are We Positive On PSN?
- Annual revenue growth of 13.4% over the past two years was outstanding, reflecting market share gains this cycle
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
Parsons’s stock price of $83.95 implies a valuation ratio of 24.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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