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 are two small-cap stocks that could be the next 100 baggers and one that could be down big.
One Small-Cap Stock to Sell:
Cognex (CGNX)
Market Cap: $8.81 billion
Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ: CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.
Why Are We Wary of CGNX?
- Sales trends were unexciting over the last five years as its 4.2% annual growth was below the typical business services company
- Earnings per share fell by 1.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Diminishing returns on capital suggest its earlier profit pools are drying up
Cognex’s stock price of $54.28 implies a valuation ratio of 42.7x forward P/E. Read our free research report to see why you should think twice about including CGNX in your portfolio.
Two Small-Cap Stocks to Watch:
Verra Mobility (VRRM)
Market Cap: $2.50 billion
Aiming to wrap technology and data around a historically manual and paper-based industry, Verra Mobility (NYSE: VRRM) is a leading provider of smart mobility technology to address tolls and violations, title and registration services, as well as safety and traffic enforcement.
Why Could VRRM Be a Winner?
- Annual revenue growth of 20% over the last five years was superb and indicates its market share increased during this cycle
- Offerings are difficult to replicate at scale and lead to a best-in-class gross margin of 61.3%
- Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 19.6% annually
At $16.54 per share, Verra Mobility trades at 12.2x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
WisdomTree (WT)
Market Cap: $2.40 billion
Originally founded as a financial media company before pivoting to ETF management in 2006, WisdomTree (NYSE: WT) is a financial services company that creates and manages exchange-traded funds (ETFs) and other investment products for individual and institutional investors.
Why Is WT a Top Pick?
- Impressive 18.9% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Share repurchases over the last two years enabled its annual earnings per share growth of 52.5% to outpace its revenue gains
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
WisdomTree is trading at $17.54 per share, or 15.5x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
