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.
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 amplify your portfolio’s returns and two best left ignored.
Two Small-Cap Stocks to Sell:
Ameresco (AMRC)
Market Cap: $1.48 billion
Having played a role in upgrading the energy solutions of Alcatraz Island, Ameresco (NYSE: AMRC) provides energy and renewable energy solutions for various sectors.
Why Are We Hesitant About AMRC?
- High input costs result in an inferior gross margin of 16.5% that must be offset through higher volumes
- Negative free cash flow raises questions about the return timeline for its investments
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $28.02 per share, Ameresco trades at 25.4x forward P/E. To fully understand why you should be careful with AMRC, check out our full research report (it’s free).
Korn Ferry (KFY)
Market Cap: $3.81 billion
With clients including 97% of the S&P 100 and operations in 103 offices across 51 countries, Korn Ferry (NYSE: KFY) is a global consulting firm that helps organizations design optimal structures, recruit talent, develop leaders, and create effective compensation strategies.
Why Is KFY Not Exciting?
- Sales tumbled by 1.3% annually over the last two years, showing market trends are working against its favor during this cycle
- Projected sales growth of 2.7% for the next 12 months suggests sluggish demand
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Korn Ferry is trading at $72.72 per share, or 14x forward P/E. Dive into our free research report to see why there are better opportunities than KFY.
One Small-Cap Stock to Watch:
DXP (DXPE)
Market Cap: $1.79 billion
Founded during the emergence of Big Oil in Texas, DXP (NASDAQ: DXPE) provides pumps, valves, and other industrial components.
Why Are We Fans of DXPE?
- Offerings and unique value proposition resonate with customers, as seen in its above-market 10.4% annual sales growth over the last five years
- Operating margin expanded by 5.2 percentage points over the last five years as it scaled and became more efficient
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 32.6% exceeded its revenue gains over the last two years
DXP’s stock price of $114.50 implies a valuation ratio of 20.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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