Best Small-Cap Stocks To Watch and Invest In Right Now
Written by
John Csiszar
Edited by
Joe Evans
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Small-cap stocks represent publicly traded companies with relatively small market capitalizations, typically ranging from a few hundred million dollars to a few billion. These businesses are often earlier in their growth cycle, which can create meaningful upside when revenue and profitability improve.
At the same time, small-cap stocks tend to be more volatile than large, established companies. They can react sharply to earnings, economic data or changes in credit conditions. For that reason, small-cap investing is usually approached as a complement to core holdings, not a replacement for them.
At a Glance: Small-Cap Stocks
Company Ticker Industry Risk Profile/Use Case One-Line Reason It Stands Out Etsy ETSY E-commerce Growth-oriented consumer platform Niche marketplace with brand-driven demand Crocs CROX Consumer discretionary Cyclical growth with cash flow Strong margins and brand momentum Five Below FIVE Retail Expansion-driven growth Store rollout fuels long-term upside Planet Fitness PLNT Fitness Consumer services growth Asset-light franchise model ShockWave Medical SWAV Medical devices Higher-risk medtech growth Procedure adoption tailwinds Sprouts Farmers Market SFM Grocery Defensive small-cap Stable demand with expansion potential
What Are Small-Cap Stocks?
Small-cap stocks are companies with smaller market capitalizations than large-cap or blue-chip firms. According to FTSE Russell, small-cap companies make up roughly 8% of the total U.S. equity market by capitalization, yet they account for a much larger share of publicly listed companies.
Because these businesses are less mature, their stock prices often reflect expectations about future growth rather than current scale.
Why Investors Consider Small-Cap Stocks
Small-cap stocks have historically offered higher long-term return potential than large-cap stocks, though with greater volatility. Research from the Federal Reserve Bank of St. Louis highlights the historical “size premium,” where smaller companies have delivered higher average returns over long periods — with larger drawdowns along the way.
Additionally, small-cap companies tend to generate more revenue domestically, which can make them more sensitive to U.S. economic trends than global multinationals.
Best Small-Cap Stocks To Consider
Etsy (ETSY)
Etsy operates an online marketplace focused on handmade, vintage and unique goods. According to company filings, revenue is driven by active buyer growth and seller services adoption. The stock can be volatile as consumer spending trends shift, but its niche positioning differentiates it from larger e-commerce platforms.
Crocs (CROX)
Crocs has delivered strong revenue and margin expansion following brand revitalization efforts. Company reports show robust free cash flow generation, which supports debt reduction and reinvestment. Demand remains cyclical, making the stock sensitive to consumer sentiment and retail conditions.
Five Below (FIVE)
Five Below targets value-conscious consumers with an expanding store footprint. According to company disclosures, growth is driven primarily by new store openings rather than price increases. Execution risk around expansion pace and inventory management remains a key factor.
Planet Fitness (PLNT)
Planet Fitness operates an asset-light franchise model that generates recurring royalty revenue. In its annual report, the company highlights membership growth and new gym openings as primary drivers. Results can fluctuate with consumer discretionary spending trends.
ShockWave Medical (SWAV)
ShockWave Medical develops devices used to treat calcified cardiovascular disease. According to company filings, revenue growth is tied to increased physician adoption and procedure volume. As with many medtech companies, valuation and trial outcomes can drive volatility.
Sprouts Farmers Market (SFM)
Sprouts focuses on natural and organic grocery offerings, with demand that tends to be more defensive than discretionary retail. Company disclosures show steady same-store sales growth supported by private-label expansion. Competition and margin pressure are ongoing considerations.
Small-Cap Stocks vs. Large-Cap Stocks
| Feature | Small-Cap Stocks | Large-Cap Stocks |
|---|---|---|
| Growth Potential | Higher | Moderate |
| Volatility | Higher | Lower |
| Liquidity | Lower | Higher |
| Analyst Coverage | Limited | Extensive |
| Economic Sensitivity | Higher | More diversified |
According to the U.S. Securities and Exchange Commission, smaller companies can experience sharper price swings due to thinner trading volume and less access to capital.
Risks of Investing in Small-Cap Stocks
Small-cap stocks can underperform during economic slowdowns or tight credit environments. The Federal Reserve has noted that smaller firms are more sensitive to rising interest rates and lending conditions than large corporations.
Liquidity risk is another concern, as lower trading volume can make it harder to exit positions during market stress.
How Small-Cap Stocks Fit Into a Portfolio
Many investors use small-cap stocks as a satellite allocation to increase growth potential. According to Vanguard research, long-term portfolio outcomes are driven primarily by asset allocation rather than individual security selection, reinforcing the importance of sizing small-cap exposure appropriately.
Diversification across industries and styles can help reduce risk.
Final Take to GO
Small-cap stocks can offer attractive growth opportunities, but they also bring higher volatility and downside risk. Companies with clear business models, strong balance sheets and identifiable growth drivers tend to be more resilient over time.
For most investors, small-cap stocks work best as a diversified complement to long-term holdings, not as a standalone strategy.
Small-Cap Stocks FAQ
- What qualifies as a small-cap stock?
- Small-cap stocks generally have market capitalizations between a few hundred million and a few billion dollars.
- Are small-cap stocks riskier than large-cap stocks?
- Yes, small-cap stocks tend to be more volatile due to size, liquidity and economic sensitivity.
- Do small-cap stocks outperform over time?
- Historically, small-cap stocks have delivered higher long-term returns, but with larger drawdowns.
- Should beginners invest in small-cap stocks?
- Beginners often start with diversified funds before adding individual small-cap stocks.
- How much small-cap exposure should a portfolio have?
- Many investors keep small-cap allocations modest to balance growth and risk.
Karen Doyle and Daria Uhlig contributed to the reporting for this article.
Data was compiled on Jan. 22, 2026, and is subject to change. Unless otherwise indicated, Information on analyst ratings was sourced from Yahoo Finance.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- Vanguard "Adding value through a strategic approach"
- U.S. Federal Reserve "Financial Stability Report - April 2025"
- Investor.gov "Investor Bulletin: Microcap Stock Basics (Part 3 of 3: Risk)"
- FTSE Russell "Russell Indexes Overview"
- The Earth Science Research Network "Stocks, Bonds, Bills, and Inflation® (SBBI®): 2020 Summary Edition"
- U.S. SEC "Etsy FORM 10-K"
- Crocs Inc. "SEC Filings"
- Five Below "Investor Relations"
- U.S. SEC "PLANET FITNESS, INC. FORM 10-K"
- U.S. SEC "Shockwave Medical, Inc. FORM 10-K"
- Sprouts "Investor Relations"
