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:

Crocs (CROX)

Market Cap: $5.61 billion

Founded in 2002, Crocs (NASDAQ:CROX) sells casual footwear and is known for its iconic clog shoe.

Why Is CROX Not Exciting?

1. Constant currency revenue growth has disappointed over the past two years and shows demand was soft
2. Free cash flow margin is forecasted to shrink by 2.9 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
3. Waning returns on capital imply its previous profit engines are losing steam

Crocs is trading at $100.93 per share, or 8.1x forward price-to-earnings. Read our free research report to see why you should think twice about including CROX in your portfolio, it’s free.

MasTec (MTZ)

Market Cap: $9.11 billion

Involved in the 1996 Olympic Games MasTec (NYSE:MTZ) is an infrastructure construction company that specializes in the telecommunications, energy, and utility industries.

Why Are We Wary of MTZ?

1. Gross margin of 13.3% reflects its high production costs
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 6.3% annually
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

MasTec’s stock price of $119.75 implies a valuation ratio of 22.3x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than MTZ.

One Small-Cap Stock to Watch:

Allison Transmission (ALSN)

Market Cap: $8.00 billion

Helping build race cars at one point, Allison Transmission (NYSE:ALSN) offers transmissions to original equipment manufacturers and fleet operators.

Why Are We Positive On ALSN?

1. Superior product capabilities and pricing power lead to a best-in-class gross margin of 47.8%
2. Share buybacks catapulted its annual earnings per share growth to 22.1%, which outperformed its revenue gains over the last two years
3. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends

At $94.04 per share, Allison Transmission trades at 10.7x forward price-to-earnings. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.