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 best left ignored.
Two Small-Cap Stocks to Sell:
E.W. Scripps (SSP)
Market Cap: $204.4 million
Founded as a chain of daily newspapers, E.W. Scripps (NASDAQ: SSP) is a diversified media enterprise operating a range of local television stations, national networks, and digital media platforms.
Why Do We Avoid SSP?
- Muted 1.2% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 8.2 percentage points over the next year
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
E.W. Scripps is trading at $2.33 per share, or 0.8x forward EV-to-EBITDA. If you’re considering SSP for your portfolio, see our FREE research report to learn more.
Huntington Ingalls (HII)
Market Cap: $9.03 billion
Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE: HII) develops marine vessels and their mission systems and maintenance services.
Why Do We Pass on HII?
- Average backlog growth of 1.8% over the past two years was mediocre and suggests fewer customers signed long-term contracts
- Free cash flow margin shrank by 9.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Eroding returns on capital suggest its historical profit centers are aging
At $218.90 per share, Huntington Ingalls trades at 16.2x forward P/E. Dive into our free research report to see why there are better opportunities than HII.
One Small-Cap Stock to Watch:
Watts Water Technologies (WTS)
Market Cap: $8.15 billion
Founded in 1874, Watts Water (NYSE: WTS) specializes in manufacturing water products and systems for residential, commercial, and industrial applications globally.
Why Do We Watch WTS?
- Superior product capabilities and pricing power result in a stellar gross margin of 45%
- Operating margin expanded by 4.5 percentage points over the last five years as it scaled and became more efficient
- Share repurchases over the last five years enabled its annual earnings per share growth of 16.9% to outpace its revenue gains
Watts Water Technologies’s stock price of $244.11 implies a valuation ratio of 26.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free.
