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. That said, here are two small-cap stocks that could amplify your portfolio’s returns and one best left ignored.
One Small-Cap Stock to Sell:
Douglas Dynamics (PLOW)
Market Cap: $632.2 million
Once manufacturing snowplows designed for the iconic jeep vehicle precursor, Douglas Dynamics (NYSE: PLOW) offers snow and ice equipment for the roads and sidewalks.
Why Should You Sell PLOW?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.4% annually
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5 percentage points
Douglas Dynamics is trading at $27.24 per share, or 14.1x forward P/E. To fully understand why you should be careful with PLOW, check out our full research report (it’s free).
Two Small-Cap Stocks to Watch:
Graham Corporation (GHM)
Market Cap: $429.1 million
Founded when its founder patented a unique design for a vacuum system used in the sugar refining process, Graham (NYSE: GHM) provides vacuum and heat transfer equipment for the energy, petrochemical, refining, and chemical sectors.
Why Are We Bullish on GHM?
- Impressive 17% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Earnings per share grew by 298% annually over the last two years and trumped its peers
- Free cash flow margin jumped by 5.6 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $39.36 per share, Graham Corporation trades at 33x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Allison Transmission (ALSN)
Market Cap: $8.59 billion
Helping build race cars at one point, Allison Transmission (NYSE: ALSN) offers transmissions to original equipment manufacturers and fleet operators.
Why Could ALSN Be a Winner?
- Superior product capabilities and pricing power result in a best-in-class gross margin of 47.7%
- Healthy operating margin of 28.8% shows it’s a well-run company with efficient processes, and it turbocharged its profits by achieving some fixed cost leverage
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Allison Transmission’s stock price of $102.01 implies a valuation ratio of 10x forward EV-to-EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. 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 Kadant (+351% five-year return). Find your next big winner with StockStory today for free.
