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.

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. That said, here is one small-cap stock that could amplify your portfolio’s returns and two best left ignored.

Two Small-Cap Stocks to Sell:

Purple (PRPL)

Market Cap: $113.7 million

Founded by two brothers, Purple (NASDAQ: PRPL) creates sleep and home comfort products such as mattresses, pillows, and bedding accessories.

Why Are We Out on PRPL?

1. Sales tumbled by 2.9% annually over the last five years, showing consumer trends are working against its favor
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Purple’s stock price of $1.08 implies a valuation ratio of 12x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including PRPL in your portfolio.

Cognex (CGNX)

Market Cap: $7.42 billion

Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ: CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.

Why Does CGNX Worry Us?

1. Sales trends were unexciting over the last two years as its 2% annual growth was below the typical business services company
2. 15.8 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. Diminishing returns on capital suggest its earlier profit pools are drying up

Cognex is trading at $45.56 per share, or 45.2x forward P/E. To fully understand why you should be careful with CGNX, check out our full research report (it’s free).

One Small-Cap Stock to Watch:

CAVA (CAVA)

Market Cap: $8.17 billion

Starting from a single Washington, D.C. location, CAVA (NYSE: CAVA) operates a fast-casual restaurant chain offering customizable Mediterranean-inspired dishes.

Why Is CAVA on Our Radar?

1. Customers are lining up to eat at its restaurants as the company’s same-store sales growth averaged 11.8% over the past two years
2. Earnings per share grew by 200% annually over the last one years and trumped its peers
3. Free cash flow margin increased by 3.1 percentage points over the last year, giving the company more capital to invest or return to shareholders

At $70.74 per share, CAVA trades at 114.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking 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 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-small-cap company Exlservice (+354% 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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