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.

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 best left ignored.

Two Small-Cap Stocks to Sell:

Air Lease (AL)

Market Cap: $5.11 billion

Established by a founder of Century City in Los Angeles, Air Lease Corporation (NYSE:AL) provides aircraft leasing and financing solutions to airlines worldwide.

Why Does AL Fall Short?

1. Sales trends were unexciting over the last five years as its 6.3% annual growth was below the typical industrials company
2. 54.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

At $45.90 per share, Air Lease trades at 1.8x forward price-to-sales. If you’re considering AL for your portfolio, see our FREE research report to learn more.

SoundHound AI (SOUN)

Market Cap: $3.83 billion

Founded in 2005, SoundHound AI (NASDAQ:SOUN) develops independent voice artificial intelligence solutions that enable businesses across various industries to offer customized conversational experiences to consumers.

Why Are We Cautious About SOUN?

1. Gross margin of 48.9% is way below its competitors, leaving less money to invest in areas like marketing and R&D
2. Negative free cash flow raises questions about the return timeline for its investments
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

SoundHound AI’s stock price of $9.26 implies a valuation ratio of 21.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than SOUN.

One Small-Cap Stock to Buy:

Vital Farms (VITL)

Market Cap: $1.47 billion

With an emphasis on ethically produced products, Vital Farms (NASDAQ:VITL) specializes in pasture-raised eggs and butter.

Why Are We Bullish on VITL?

1. Products are flying off the shelves as its unit sales averaged 18.9% growth over the past two years
2. Expected revenue growth of 22.4% for the next year suggests its market share will rise
3. Earnings per share have massively outperformed its peers over the last three years, increasing by 194% annually

Vital Farms is trading at $32.91 per share, or 27.4x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.

Stocks We Like Even More

The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.

Get started by checking out 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 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.