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.
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 could be down big.
Two Small-Cap Stocks to Sell:
Sirius XM (SIRI)
Market Cap: $9.15 billion
Known for its commercial-free music channels, Sirius XM (NASDAQ: SIRI) is a broadcasting company that provides satellite radio and online radio services across North America.
Why Should You Sell SIRI?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last five years
- Free cash flow margin is forecasted to shrink by 1.8 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Sirius XM is trading at $27.20 per share, or 8.5x forward P/E. Check out our free in-depth research report to learn more about why SIRI doesn’t pass our bar.
Encore Capital Group (ECPG)
Market Cap: $2.19 billion
Operating in the often misunderstood world of debt collection since 1999, Encore Capital Group (NASDAQ: ECPG) purchases portfolios of defaulted consumer debt at deep discounts and works with individuals to recover these obligations while helping them toward financial recovery.
Why Are We Hesitant About ECPG?
- 3.1% annual revenue growth over the last five years was slower than its financials peers
- Below-average return on equity indicates management struggled to find compelling investment opportunities
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $102.14 per share, Encore Capital Group trades at 1.8x forward P/B. If you’re considering ECPG for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Buy:
Happen Bank (HAPN)
Market Cap: $1.68 billion
Pioneering peer-to-peer lending in the US before evolving into a digital bank, Happen Bank (NASDAQ: HAPN) operates a marketplace that connects borrowers with lenders, offering personal loans, auto refinancing, and banking services.
Why Will HAPN Beat the Market?
- Impressive 18.1% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 108% annually, topping its revenue gains
- Acceptable return on equity suggests management generated shareholder value by investing in profitable projects
Happen Bank’s stock price of $14.58 implies a valuation ratio of 7.3x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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 meet 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 (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
