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. That said, here is one small-cap stock that could be the next big thing and two that may have trouble.
Two Small-Cap Stocks to Sell:
Varonis Systems (VRNS)
Market Cap: $2.74 billion
Beginning with protecting Windows file shares in 2005 and evolving into a comprehensive security platform, Varonis Systems (NASDAQ: VRNS) provides data security software that helps organizations protect sensitive information, detect threats, and comply with privacy regulations.
Why Does VRNS Fall Short?
- Revenue increased by 11.8% annually over the last two years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Efficiency has decreased over the last year as its operating margin fell by 2.1 percentage points
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 6.5 percentage points over the next year
Varonis Systems’s stock price of $23.92 implies a valuation ratio of 3.8x forward price-to-sales. Check out our free in-depth research report to learn more about why VRNS doesn’t pass our bar.
Hub Group (HUBG)
Market Cap: $2.26 billion
Started with $10,000, Hub Group (NASDAQ: HUBG) is a provider of intermodal, truck brokerage, and logistics services, facilitating transportation solutions for businesses worldwide.
Why Do We Steer Clear of HUBG?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 9% annually over the last two years
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 28% annually, worse than its revenue
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $38.20 per share, Hub Group trades at 19.5x forward P/E. Dive into our free research report to see why there are better opportunities than HUBG.
One Small-Cap Stock to Watch:
Maximus (MMS)
Market Cap: $3.55 billion
With nearly 50 years of experience translating public policy into operational programs that serve millions of citizens, Maximus (NYSE: MMS) provides operational services, clinical assessments, and technology solutions to government agencies in the U.S. and internationally.
Why Are We Positive On MMS?
- 8.4% annual revenue growth over the last five years surpassed the sector average as its services resonated with customers
- Economies of scale give it more fixed cost leverage than its smaller competitors
- Share repurchases over the last two years enabled its annual earnings per share growth of 30.7% to outpace its revenue gains
Maximus is trading at $65.15 per share, or 7.1x 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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
