Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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 be the next big thing and two that may have trouble.
Two Small-Cap Stocks to Sell:
Energy Recovery (ERII)
Market Cap: $356.8 million
Having saved far more than a trillion gallons of water, Energy Recovery (NASDAQ:ERII) provides energy recovery devices to the water treatment, oil and gas, and chemical processing sectors.
Why Is ERII Not Exciting?
- Sales tumbled by 5% annually over the last two years, showing market trends are working against it during this cycle
- Flat earnings per share over the last two years underperformed the sector average
Energy Recovery’s stock price of $7.02 implies a valuation ratio of 1,410x forward P/E. Check out our free in-depth research report to learn more about why ERII doesn’t pass our bar.
Onterris (ONT)
Market Cap: $636 million
Founded to protect a tree-lined two-lane road, Onterris (NYSE:ONT) provides air quality monitoring, environmental laboratory testing, compliance, and environmental consulting services.
Why Does ONT Fall Short?
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Persistent operating margin losses suggest the business manages its expenses poorly
- Negative returns on capital show management lost money while trying to expand the business
At $18.10 per share, Onterris trades at 12.3x forward P/E. To fully understand why you should be careful with ONT, check out our full research report (it’s free).
One Small-Cap Stock to Buy:
OSI Systems (OSIS)
Market Cap: $3.15 billion
With security scanners deployed at airports and borders worldwide and patient monitors used in hospitals across the globe, OSI Systems (NASDAQ:OSIS) designs and manufactures specialized electronic systems for security screening, patient monitoring, and optoelectronic applications.
Why Will OSIS Beat the Market?
- Annual revenue growth of 9.3% over the last five years was superb and indicates its market share increased during this cycle
- Share buybacks catapulted its annual earnings per share growth to 14.3%, which outperformed its revenue gains over the last five years
- Free cash flow margin jumped by 20.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
OSI Systems is trading at $197.80 per share, or 17.6x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.