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.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, 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:

Upstart (UPST)

Market Cap: $7.19 billion

Founded by the former head of Google's enterprise business, Upstart (NASDAQ: UPST) is an AI-powered lending platform facilitating loans for banks and consumers.

Why Do We Think Twice About UPST?

1. Products and services have few die-hard fans as sales have declined by 11.4% annually over the last three years
2. Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions
3. High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Upstart’s stock price of $74.65 implies a valuation ratio of 6.7x forward price-to-sales. If you’re considering UPST for your portfolio, see our FREE research report to learn more.

Rithm Capital (RITM)

Market Cap: $6.19 billion

Evolving from a mortgage-focused REIT to a diversified asset manager with its 2023 acquisition of Sculptor Capital, Rithm Capital (NYSE: RITM) is a global asset manager focused on real estate, credit, and financial services that invests in mortgage servicing rights, residential properties, and loan portfolios.

Why Do We Think RITM Will Underperform?

1. Muted 4.7% annual revenue growth over the last two years shows its demand lagged behind its bank peers
2. Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
3. Muted 1.5% annual tangible book value per share growth over the last two years shows its capital generation lagged behind its bank peers

At $11.65 per share, Rithm Capital trades at 0.9x forward P/B. To fully understand why you should be careful with RITM, check out our full research report (it’s free).

One Small-Cap Stock to Watch:

Parsons (PSN)

Market Cap: $7.99 billion

Delivering aerospace technology during the Cold War-era, Parsons (NYSE: PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.

Why Does PSN Stand Out?

1. Annual revenue growth of 23.8% over the last two years was superb and indicates its market share increased during this cycle
2. Share repurchases have amplified shareholder returns as its annual earnings per share growth of 35.3% exceeded its revenue gains over the last two years
3. Improving returns on capital suggest its past investments are beginning to deliver value

Parsons is trading at $78 per share, or 19.9x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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