1 Small-Cap Stock with Solid Fundamentals and 2 Facing Challenges

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.

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 100 bagger and two best left ignored.

Two Small-Cap Stocks to Sell:

Qualys (QLYS)

Market Cap: $5.09 billion

Originally developed to address the growing complexity of IT security in the cloud era, Qualys (NASDAQ:QLYS) provides a cloud-based platform that helps organizations identify, manage, and protect their IT assets from cyber threats across on-premises, cloud, and mobile environments.

Why Do We Think Twice About QLYS?

1. Underwhelming ARR growth of 10.1% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
2. Estimated sales growth of 8.1% for the next 12 months implies demand will slow from its two-year trend
3. Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage

At $141.94 per share, Qualys trades at 7.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than QLYS.

Kohl's (KSS)

Market Cap: $2.52 billion

Founded as a corner grocery store in Milwaukee, Wisconsin, Kohl’s (NYSE:KSS) is a department store chain that sells clothing, cosmetics, electronics, and home goods.

Why Should You Sell KSS?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Earnings per share have dipped by 29.6% annually over the past three years, which is concerning because stock prices follow EPS over the long term
3. High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Kohl’s stock price of $22.50 implies a valuation ratio of 18.3x forward P/E. To fully understand why you should be careful with KSS, check out our full research report (it’s free for active Edge members).

One Small-Cap Stock to Watch:

RLI (RLI)

Market Cap: $6.07 billion

Founded in 1965 and named after its original focus on "replacement lens insurance" for contact lens wearers, RLI (NYSE:RLI) is a specialty insurance company that underwrites property, casualty, and surety products through wholesale brokers, independent agents, and carrier partnerships.

Why Is RLI on Our Radar?

1. Impressive 13.7% annual revenue growth over the last five years indicates it’s winning market share this cycle
2. Strong 13.3% annualized net premiums earned expansion over the last two years shows it’s capturing market share this cycle
3. Industry-leading 28.4% return on equity demonstrates management’s skill in finding high-return investments

RLI is trading at $66.06 per share, or 3.3x forward P/B. Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.

Stocks We Like Even More

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Growth Stocks for this month. 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 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.