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. That said, here is one small-cap stock that could amplify your portfolio’s returns and two that could be down big.
Two Small-Cap Stocks to Sell:
Mattel (MAT)
Market Cap: $5.12 billion
Known for the creation of iconic toys such as Barbie and Hotwheels, Mattel (NASDAQ:MAT) is a global children's entertainment company specializing in the design and production of consumer products.
Why Do We Pass on MAT?
- Lackluster 3.1% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 9.4% for the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Mattel is trading at $16.46 per share, or 12.3x forward P/E. Read our free research report to see why you should think twice about including MAT in your portfolio.
SoundHound AI (SOUN)
Market Cap: $3.13 billion
Born from the idea that machines should understand human speech as naturally as people do, SoundHound AI (NASDAQ:SOUN) develops voice recognition and conversational intelligence technology that enables businesses to integrate voice assistants into their products and services.
Why Does SOUN Worry Us?
- Gross margin of 39.7% reflects its high servicing costs
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Negative free cash flow raises questions about the return timeline for its investments
SoundHound AI’s stock price of $7.48 implies a valuation ratio of 14.6x 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:
Instacart (CART)
Market Cap: $9.53 billion
Powering more than one billion grocery orders since its founding, Instacart (NASDAQ:CART) is an online grocery shopping and delivery platform that partners with retailers to help customers shop from local stores through its app or website.
Why Is CART a Top Pick?
- Prominent and differentiated platform culminates in a premier gross margin of 74.4%
- Excellent EBITDA margin of 27.7% highlights the efficiency of its business model, and it turbocharged its profits by achieving some fixed cost leverage
- Free cash flow margin expanded by 14.4 percentage points over the last few years, providing additional flexibility for investments and share buybacks/dividends
At $35.84 per share, Instacart trades at 6.6x forward EV/EBITDA. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.