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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here is one small-cap stock that could be the next big thing and two best left ignored.
Two Small-Cap Stocks to Sell:
Shake Shack (SHAK)
Market Cap: $2.52 billion
Started as a hot dog cart in New York City's Madison Square Park, Shake Shack (NYSE: SHAK) is a fast-food restaurant known for its burgers and milkshakes.
Why Does SHAK Give Us Pause?
- Subpar operating margin of 2.5% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Low free cash flow margin of 1.2% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Underwhelming 0.1% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $62.42 per share, Shake Shack trades at 48.2x forward P/E. Dive into our free research report to see why there are better opportunities than SHAK.
Atmus Filtration Technologies (ATMU)
Market Cap: $3.77 billion
Spun out of Cummins in 2023 after 65 years as part of the engine maker, Atmus Filtration Technologies (NYSE: ATMU) manufactures filters for trucks, construction equipment, and agriculture machinery to reduce emissions and protect engines.
Why Does ATMU Worry Us?
- 6.1% annual revenue growth over the last five years was slower than its industrials peers
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 26.7%
Atmus Filtration Technologies is trading at $46.41 per share, or 14.6x forward P/E. If you’re considering ATMU for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Buy:
ServisFirst Bancshares (SFBS)
Market Cap: $4.32 billion
Founded in 2005 with a focus on serving underserved mid-sized businesses, ServisFirst Bancshares (NYSE: SFBS) is a bank holding company that provides commercial banking services to businesses and professionals through its subsidiary ServisFirst Bank.
Why Will SFBS Beat the Market?
- Annual revenue growth of 19.5% over the last two years was superb and indicates its market share increased during this cycle
- Net interest margin expanded by 71.1 basis points (100 basis points = 1 percentage point) over the last two years, providing additional flexibility for investments
- Additional sales over the last two years increased its profitability as the 25.7% annual growth in its earnings per share outpaced its revenue
ServisFirst Bancshares’s stock price of $39.51 implies a valuation ratio of 2.1x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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.
Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.
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 Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.
