Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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. Keeping that in mind, here are two small-cap stocks that could amplify your portfolio’s returns and one best left ignored.
One Small-Cap Stock to Sell:
Avantor (AVTR)
Market Cap: $8.78 billion
With roots dating back to 1904 and embedded in virtually every stage of scientific research and production, Avantor (NYSE: AVTR) provides mission-critical products, materials, and services to customers in biopharma, healthcare, education, and advanced technology industries.
Why Does AVTR Worry Us?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Free cash flow margin dropped by 4.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Avantor’s stock price of $12.88 implies a valuation ratio of 12x forward P/E. To fully understand why you should be careful with AVTR, check out our full research report (it’s free).
Two Small-Cap Stocks to Buy:
Federal Signal (FSS)
Market Cap: $7.66 billion
Developing sirens that warned of air raid attacks or fallout during the Cold War, Federal Signal (NYSE: FSS) provides safety and emergency equipment for government agencies, municipalities, and industrial companies.
Why Do We Love FSS?
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 28.5% outpaced its revenue gains
- Free cash flow margin jumped by 4.1 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $126.06 per share, Federal Signal trades at 31.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Enova (ENVA)
Market Cap: $2.69 billion
Pioneering online lending since 2004 with a massive database of over 65 terabytes of customer behavior data, Enova International (NYSE: ENVA) provides online financial services including installment loans and lines of credit to non-prime consumers and small businesses in the United States and Brazil.
Why Is ENVA a Good Business?
- Impressive 23.4% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Share repurchases over the last two years enabled its annual earnings per share growth of 26.8% to outpace its revenue gains
- Balance sheet strength has increased this cycle as its 25.4% annual book value per share growth over the last five years was exceptional
Enova is trading at $107.71 per share, or 8.5x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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 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-small-cap company Comfort Systems (+782% 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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