1 Small-Cap Stock with Exciting Potential and 2 We Turn Down

1 Small-Cap Stock with Exciting Potential and 2 We Turn Down

Radek Strnad

Wed, February 18, 2026 at 1:33 PM GMT+9 3 min read

In this article:

VRNS

-0.16%

USPH

-0.46%

SLM

-0.58%

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.

Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here is one small-cap stock that could be the next big thing and two that could be down big.

Two Small-Cap Stocks to Sell:

Varonis Systems (VRNS)

Market Cap: $2.97 billion

Beginning with protecting Windows file shares in 2005 and evolving into a comprehensive security platform, Varonis Systems (NASDAQ:VRNS) provides data security software that helps organizations protect sensitive information, detect threats, and comply with privacy regulations.

Why Are We Hesitant About VRNS?

11.8% annual revenue growth over the last two years was slower than its software peers

Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 2.1 percentage points

Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 6.5 percentage points over the next year

Varonis Systems is trading at $25.40 per share, or 4.1x forward price-to-sales. Check out our free in-depth research report to learn more about why VRNS doesn’t pass our bar.

U.S. Physical Therapy (USPH)

Market Cap: $1.32 billion

With a nationwide footprint spanning 671 clinics across 42 states, U.S. Physical Therapy (NYSE:USPH) operates a network of outpatient physical therapy clinics and provides industrial injury prevention services to employers across the United States.

Why Is USPH Not Exciting?

Modest revenue base of $758.7 million gives it less fixed cost leverage and fewer distribution channels than larger companies

Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.6 percentage points

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

At $86.54 per share, U.S. Physical Therapy trades at 30.8x forward P/E. Dive into our free research report to see why there are better opportunities than USPH.

One Small-Cap Stock to Watch:

Sallie Mae (SLM)

Market Cap: $4.76 billion

Originally created as a government-sponsored enterprise before privatizing in 2004, Sallie Mae (NASDAQ:SLM) is a financial services company that provides private education loans, savings products, and educational resources to help students and families pay for college.

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Why Are We Positive On SLM?

Share repurchases over the last two years enabled its annual earnings per share growth of 20.2% to outpace its revenue gains

Stellar return on equity showcases management’s ability to surface highly profitable business ventures

Sallie Mae’s stock price of $24.05 implies a valuation ratio of 8.8x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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 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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.

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