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 that may have trouble.

Two Small-Cap Stocks to Sell:

First Watch (FWRG)

Market Cap: $755.1 million

Based on a nautical reference to the first work shift aboard a ship, First Watch (NASDAQ: FWRG) is a chain of breakfast and brunch restaurants whose menu is heavily-focused on eggs and griddle items such as pancakes.

Why Does FWRG Worry Us?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
2. Cash burn has widened over the last year, making us question whether it can reliably generate shareholder value
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

First Watch is trading at $12.36 per share, or 62.7x forward P/E. Read our free research report to see why you should think twice about including FWRG in your portfolio.

Ziff Davis (ZD)

Market Cap: $1.63 billion

Originally a pioneering technology publisher founded in 1927 that became famous for PC Magazine, Ziff Davis (NASDAQ: ZD) operates a portfolio of digital media brands and subscription services across technology, shopping, gaming, healthcare, and cybersecurity markets.

Why Do We Avoid ZD?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Sales over the last five years were less profitable as its earnings per share fell by 4.1% annually while its revenue was flat
3. Free cash flow margin shrank by 9.3 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

At $43.36 per share, Ziff Davis trades at 6x forward P/E. Dive into our free research report to see why there are better opportunities than ZD.

One Small-Cap Stock to Watch:

BGC (BGC)

Market Cap: $4.55 billion

Tracing its roots back to 1945 and named after founder Bernard Gerald Cantor, BGC Group (NASDAQ: BGC) operates a global brokerage and financial technology platform that facilitates trading across fixed income, foreign exchange, equities, energy, and commodities markets.

Why Are We Fans of BGC?

1. Annual revenue growth of 20.2% over the past two years was outstanding, reflecting market share gains this cycle
2. Earnings per share grew by 20.2% annually over the last two years and easily exceeded the peer group average
3. Management team has demonstrated it can invest in profitable ventures through its 11.7% five-year return on equity

BGC’s stock price of $9.60 implies a valuation ratio of 6.7x 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

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.