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 are two small-cap stocks that could amplify your portfolio’s returns and one that may have trouble.
One Small-Cap Stock to Sell:
Tutor Perini (TPC)
Market Cap: $1.31 billion
Known for constructing the Philadelphia Eagles’ Stadium, Tutor Perini (NYSE:TPC) is a civil and building construction company offering diversified general contracting and design-build services.
Why Do We Avoid TPC?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- EBITDA losses may force it to accept punitive lending terms or high-cost debt
At $25.02 per share, Tutor Perini trades at 15.7x forward price-to-earnings. To fully understand why you should be careful with TPC, check out our full research report (it’s free).
Two Small-Cap Stocks to Buy:
Abercrombie and Fitch (ANF)
Market Cap: $3.96 billion
Founded as an outdoor and sporting brand, Abercrombie & Fitch (NYSE:ANF) evolved to become a specialty retailer that sells its own brand of fashionable clothing to young adults.
Why Are We Bullish on ANF?
- Comparable store sales rose by 14.6% on average over the past two years, demonstrating its ability to drive increased spending at existing locations
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Abercrombie and Fitch is trading at $79.50 per share, or 6.9x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.
Napco (NSSC)
Market Cap: $918.8 million
With roots dating back to 1969 and a focus on protecting people and property, Napco Security Technologies (NASDAQ:NSSC) manufactures electronic security devices, access control systems, and communication services for intrusion and fire alarm systems.
Why Do We Love NSSC?
- Annual revenue growth of 11.8% over the last five years was superb and indicates its market share increased during this cycle
- Robust free cash flow margin of 16.3% gives it many options for capital deployment, and its improved cash conversion implies it’s becoming a less capital-intensive business
- Returns on capital are climbing as management makes more lucrative bets
Napco’s stock price of $25.79 implies a valuation ratio of 16.3x forward price-to-earnings. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.
Get started 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 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.