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.
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 that may have trouble.
Two Small-Cap Stocks to Sell:
Zevia (ZVIA)
Market Cap: $82.33 million
With a primary focus on soda but also a presence in energy drinks and teas, Zevia (NYSE:ZVIA) is a better-for-you beverage company.
Why Does ZVIA Fall Short?
- Flat sales over the last three years suggest it must innovate and find new ways to grow
- Modest revenue base of $161.3 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Suboptimal cost structure is highlighted by its history of operating margin losses
At $1.25 per share, Zevia trades at 0.5x forward price-to-sales. To fully understand why you should be careful with ZVIA, check out our full research report (it’s free).
Preferred Bank (PFBC)
Market Cap: $1.11 billion
Founded in 1991 with a focus on serving the Pacific Rim community in Southern California, Preferred Bank (NASDAQ:PFBC) is a commercial bank that provides banking products and services to small and mid-sized businesses, entrepreneurs, real estate developers, and high net worth individuals.
Why Are We Wary of PFBC?
- Annual net interest income growth of 9% over the last five years was below our standards for the banking sector
- Concessions to defend its market share have ramped up over the last two years as its net interest margin decreased by 61.7 basis points (100 basis points = 1 percentage point)
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 1.3% annually
Preferred Bank’s stock price of $93.48 implies a valuation ratio of 1.3x forward P/B. Read our free research report to see why you should think twice about including PFBC in your portfolio.
One Small-Cap Stock to Buy:
Pathward Financial (CASH)
Market Cap: $2.14 billion
Formerly known as Meta Financial until its 2022 rebranding, Pathward Financial (NASDAQ:CASH) provides banking-as-a-service solutions and commercial finance products, enabling partners to offer financial services like prepaid cards, payment processing, and lending options.
Why Are We Bullish on CASH?
- Annual net interest income growth of 13.2% over the last five years beat the sector average and underscores the value of its loans
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 18.3% exceeded its revenue gains over the last five years
Pathward Financial is trading at $98.64 per share, or 2.3x forward P/B. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
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 Exlservice (+354% five-year return). Find your next big winner with StockStory today.