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.
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 is one small-cap stock that could be the next big thing and two best left ignored.
Two Small-Cap Stocks to Sell:
Middleby (MIDD)
Market Cap: $7.10 billion
Holding a Guinness World Record for creating the world’s fastest conveyor pizza oven, Middleby (NASDAQ: MIDD) is a food service and equipment manufacturer.
Why Should You Dump MIDD?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Earnings per share have contracted by 2.3% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $150.28 per share, Middleby trades at 16x forward P/E. Read our free research report to see why you should think twice about including MIDD in your portfolio.
Root (ROOT)
Market Cap: $689.5 million
Pioneering a data-driven approach that rewards good driving habits, Root (NASDAQ: ROOT) is a technology-driven auto insurance company that uses mobile apps to acquire customers and data science to price policies based on individual driving behavior.
Why Is ROOT Not Exciting?
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 24.6% annually over the last five years
- Push for growth has led to negative returns on capital, signaling value destruction
Root is trading at $44.57 per share, or 1.9x forward P/B. Check out our free in-depth research report to learn more about why ROOT doesn’t pass our bar.
One Small-Cap Stock to Watch:
Ibotta (IBTA)
Market Cap: $533 million
Originally launched as a way to make grocery shopping more rewarding for budget-conscious consumers, Ibotta (NYSE: IBTA) is a mobile shopping app that allows consumers to earn cash back on everyday purchases by completing tasks and submitting receipts.
Why Could IBTA Be a Winner?
- Annual revenue growth of 23.3% over the past three years was outstanding, reflecting market share gains this cycle
- Adjusted operating profits and efficiency rose over the last four years as it benefited from some fixed cost leverage
- Free cash flow margin grew by 47.8 percentage points over the last four years, giving the company more chips to play with
Ibotta’s stock price of $21.89 implies a valuation ratio of 15.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren't just high-quality businesses. Something is happening with them right now. Elite fundamentals meeting near-term momentum — both boxes checked at the same time.
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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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
