1 Small-Cap Stock on Our Watchlist and 2 Facing Challenges

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.

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 be the next big thing and two that may have trouble.

Two Small-Cap Stocks to Sell:

ESAB (ESAB)

Market Cap: $7.30 billion

Having played a significant role in the construction of the iconic Sydney Opera House, ESAB (NYSE:ESAB) manufactures and sells welding and cutting equipment for numerous industries.

Why Does ESAB Give Us Pause?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
3. Free cash flow margin dropped by 3.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up

ESAB’s stock price of $120.19 implies a valuation ratio of 20.4x forward P/E. Check out our free in-depth research report to learn more about why ESAB doesn’t pass our bar.

Wintrust Financial (WTFC)

Market Cap: $9.77 billion

Founded in 1991 as a community-focused alternative to big banks in the Chicago area, Wintrust Financial (NASDAQGS:WTFC) operates community banks in the Chicago area and provides specialty finance services including insurance premium financing and wealth management.

Why Are We Wary of WTFC?

1. 8.2% annual revenue growth over the last two years was slower than its banking peers
2. Annual earnings per share growth of 6.1% underperformed its revenue over the last two years, showing its incremental sales were less profitable
3. Low interest coverage ratio indicates the company may struggle to service its debt obligations if operational performance deteriorates

Wintrust Financial is trading at $145.91 per share, or 1.5x forward P/B. Read our free research report to see why you should think twice about including WTFC in your portfolio.

One Small-Cap Stock to Watch:

FTAI Infrastructure (FIP)

Market Cap: $573.3 million

Spun off from FTAI Aviation in 2021, FTAI Infrastructure (NASDAQ:FIP) invests in and operates infrastructure and related assets across the transportation and energy sectors.

Why Does FIP Stand Out?

1. Market share has increased this cycle as its 19% annual revenue growth over the last two years was exceptional
2. Exciting sales outlook for the upcoming 12 months calls for 73.5% growth, an acceleration from its two-year trend

At $4.85 per share, FTAI Infrastructure trades at 11.6x forward EV-to-EBITDA. Is now the right time to buy? See for yourself in our full research report, it’s free.

Stocks We Like Even More

Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum 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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.