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. Keeping that in mind, here are two small-cap stocks that could be the next big thing and one that may have trouble.
One Small-Cap Stock to Sell:
Portillo's (PTLO)
Market Cap: $331.4 million
Begun as a Chicago hot dog stand in 1963, Portillo’s (NASDAQ: PTLO) is a casual restaurant chain that serves Chicago-style hot dogs and beef sandwiches as well as fries and shakes.
Why Should You Sell PTLO?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.8% for the last two years
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $4.56 per share, Portillo's trades at 21.8x forward P/E. Dive into our free research report to see why there are better opportunities than PTLO.
Two Small-Cap Stocks to Watch:
Brinker International (EAT)
Market Cap: $8.16 billion
Founded by Norman Brinker in Dallas, Brinker International (NYSE: EAT) is a casual restaurant chain that operates the Chili’s, Maggiano’s Little Italy, and It’s Just Wings banners.
Why Could EAT Be a Winner?
- Same-store sales growth over the past two years shows it’s successfully drawing diners into its restaurants
- Economies of scale give it more fixed cost leverage than its smaller competitors
- Free cash flow margin increased by 1.9 percentage points over the last year, giving the company more capital to invest or return to shareholders
Brinker International is trading at $195.33 per share, or 14.9x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Flowserve (FLS)
Market Cap: $8.89 billion
Manufacturing the largest pump ever built for nuclear power generation, Flowserve (NYSE: FLS) manufactures and sells flow control equipment for various industries.
Why Does FLS Stand Out?
- Operating margin expanded by 2.4 percentage points over the last five years as it scaled and became more efficient
- Share repurchases over the last two years enabled its annual earnings per share growth of 23.7% to outpace its revenue gains
- Free cash flow margin increased by 7.3 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Flowserve’s stock price of $70.11 implies a valuation ratio of 16.2x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
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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-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
