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. Keeping that in mind, here is one small-cap stock that could be the next 100 bagger and two best left ignored.
Two Small-Cap Stocks to Sell:
Gap (GAP)
Market Cap: $7.68 billion
Operating under the Gap, Old Navy, Banana Republic, and Athleta brands, Gap (NYSE:GAP) is an apparel and accessories retailer selling casual clothing to men, women, and children.
Why Do We Think Twice About GAP?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 2.7 percentage points
- ROIC of 7.6% reflects management’s challenges in identifying attractive investment opportunities
Gap’s stock price of $20.80 implies a valuation ratio of 10.4x forward P/E. Check out our free in-depth research report to learn more about why GAP doesn’t pass our bar.
Golden Entertainment (GDEN)
Market Cap: $571.3 million
Founded in 2001, Golden Entertainment (NASDAQ:GDEN) is a gaming company operating casinos, taverns, and distributed gaming platforms.
Why Does GDEN Worry Us?
- Annual revenue declines of 3.3% over the last five years indicate problems with its market positioning
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Low free cash flow margin of 3.3% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $21.84 per share, Golden Entertainment trades at 29.9x forward P/E. If you’re considering GDEN for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Watch:
Yelp (YELP)
Market Cap: $2.00 billion
Founded by PayPal alumni Jeremy Stoppelman and Russel Simmons, Yelp (NYSE:YELP) is an online platform that helps people discover local businesses through crowd-sourced reviews.
Why Does YELP Stand Out?
- Platform is difficult to replicate at scale and results in a best-in-class gross margin of 91.1%
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 26%, and its profits increased over the last few years as it scaled
- Share repurchases over the last three years enabled its annual earnings per share growth of 28.4% to outpace its revenue gains
Yelp is trading at $31.70 per share, or 5.9x forward EV/EBITDA. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
Stocks We Like Even More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking 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 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% 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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