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.
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. 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:
Enovis (ENOV)
Market Cap: $1.48 billion
With a focus on helping patients regain or maintain their natural motion, Enovis (NYSE: ENOV) develops and manufactures medical devices for orthopedic care, from injury prevention and pain management to joint replacement and rehabilitation.
Why Do We Think ENOV Will Underperform?
- Sales tumbled by 2.3% annually over the last five years, showing market trends are working against its favor during this cycle
- Negative returns on capital show that some of its growth strategies have backfired, and its falling returns suggest its earlier profit pools are drying up
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Enovis’s stock price of $25.71 implies a valuation ratio of 6.9x forward P/E. Check out our free in-depth research report to learn more about why ENOV doesn’t pass our bar.
LifeStance Health Group (LFST)
Market Cap: $3.14 billion
With over 6,600 licensed mental health professionals treating more than 880,000 patients annually, LifeStance Health (NASDAQ: LFST) provides outpatient mental health services through a network of clinicians offering psychiatric evaluations, psychological testing, and therapy across 33 states.
Why Does LFST Worry Us?
- Subscale operations are evident in its revenue base of $1.49 billion, meaning it has fewer distribution channels than its larger rivals
- Low free cash flow margin of 0.9% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Negative returns on capital show management lost money while trying to expand the business
LifeStance Health Group is trading at $8.19 per share, or 23.3x forward P/E. To fully understand why you should be careful with LFST, check out our full research report (it’s free).
One Small-Cap Stock to Buy:
Hims & Hers Health (HIMS)
Market Cap: $5.59 billion
Originally launched with a focus on stigmatized conditions like hair loss and sexual health, Hims & Hers Health (NYSE: HIMS) operates a consumer-focused telehealth platform that connects patients with healthcare providers for prescriptions and wellness products.
Why Will HIMS Outperform?
- Customer growth averaged 26.1% over the past two years, showing its ability to "land" new contracts and potentially "expand" them later - a powerful one-two punch for sales
- Free cash flow margin grew by 16.1 percentage points over the last five years, giving the company more chips to play with
- Improving returns on capital suggest its past investments are beginning to deliver value
At $24.03 per share, Hims & Hers Health trades at 19.1x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
