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. Keeping that in mind, here is one small-cap stock that could be the next 100 bagger and two that could be down big.

Two Small-Cap Stocks to Sell:

Simpson (SSD)

Market Cap: $6.29 billion

Aiming to build safer and stronger buildings, Simpson (NYSE:SSD) designs and manufactures structural connectors, anchors, and other construction products.

Why Do We Think Twice About SSD?

1. Annual revenue growth of 2.7% over the last two years was below our standards for the industrials sector

2. Free cash flow margin shrank by 5.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Simpson is trading at $149.83 per share, or 18.3x forward price-to-earnings. Read our free research report to see why you should think twice about including SSD in your portfolio, it’s free .

U.S. Cellular (USM)

Market Cap: $5.61 billion

Operating as a majority-owned subsidiary of Telephone and Data Systems since its founding in 1983, US Cellular (NYSE:USM) is a regional wireless telecommunications provider serving 4.6 million customers across 21 states with mobile phone, internet, and IoT services.

Why Should You Dump USM?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.3% annually over the last five years

2. Earnings per share have dipped by 18.4% annually over the past five years, which is concerning because stock prices follow EPS over the long term

3. ROIC of 1.2% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

U.S. Cellular’s stock price of $65.74 implies a valuation ratio of 5.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why USM doesn’t pass our bar .

One Small-Cap Stock to Watch:

Herc (HRI)

Market Cap: $3.27 billion

Formerly a subsidiary of Hertz Corporation and with a logo that still bears some similarities to its former parent, Herc Holdings (NYSE:HRI) provides equipment rental and related services to a wide range of industries.