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:
Methode Electronics (MEI)
Market Cap: $404.6 million
Founded in 1946, Methode Electronics (NYSE: MEI) is a global supplier of custom-engineered solutions for Original Equipment Manufacturers (OEMs).
Why Should You Dump MEI?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Methode Electronics’s stock price of $12.00 implies a valuation ratio of 9.1x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than MEI.
SAIC (SAIC)
Market Cap: $4.86 billion
With over five decades of experience supporting national security missions, Science Applications International Corporation (NASDAQ: SAIC) provides technical, engineering, and enterprise IT services primarily to U.S. government agencies and military branches.
Why Does SAIC Give Us Pause?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Sales are projected to tank by 1.6% over the next 12 months as demand evaporates further
At $113.96 per share, SAIC trades at 11.9x forward P/E. To fully understand why you should be careful with SAIC, check out our full research report (it’s free).
One Small-Cap Stock to Buy:
Mueller Water Products (MWA)
Market Cap: $4.01 billion
As one of the oldest companies in the water infrastructure industry, Mueller (NYSE: MWA) is a provider of water infrastructure products and flow control systems for various sectors.
Why Are We Backing MWA?
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Additional sales over the last two years increased its profitability as the 32.8% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin grew by 6.6 percentage points over the last five years, giving the company more chips to play with
Mueller Water Products is trading at $25.83 per share, or 16.9x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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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.
