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 that may have trouble.
Two Small-Cap Stocks to Sell:
Red Rock Resorts (RRR)
Market Cap: $3.33 billion
Founded in 1976, Red Rock Resorts (NASDAQ: RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.
Why Do We Avoid RRR?
- Sales trends were unexciting over the last five years as its 11.8% annual growth was below the typical consumer discretionary company
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $57.51 per share, Red Rock Resorts trades at 17.6x forward P/E. If you’re considering RRR for your portfolio, see our FREE research report to learn more.
Norwegian Cruise Line (NCLH)
Market Cap: $8.33 billion
With amenities like a full go-kart race track built into its ships, Norwegian Cruise Line (NYSE: NCLH) is a premier global cruise company.
Why Do We Pass on NCLH?
- Number of passenger cruise days has disappointed over the past two years, indicating weak demand for its offerings
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Norwegian Cruise Line’s stock price of $18.14 implies a valuation ratio of 11.4x forward P/E. Dive into our free research report to see why there are better opportunities than NCLH.
One Small-Cap Stock to Buy:
LSI (LYTS)
Market Cap: $880.8 million
Enhancing commercial environments, LSI (NASDAQ: LYTS) provides lighting and display solutions for businesses and retailers.
Why Will LYTS Beat the Market?
- Market share has increased this cycle as its 16.7% annual revenue growth over the last five years was exceptional
- Additional sales over the last five years increased its profitability as the 35.2% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin increased by 8.9 percentage points over the last five years, giving the company more capital to invest or return to shareholders
LSI is trading at $24.76 per share, or 18x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
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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.
