Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
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 be the next 100 bagger and two that may have trouble.
Two Small-Cap Stocks to Sell:
Worthington (WOR)
Market Cap: $2.02 billion
Founded by a steel salesman, Worthington (NYSE:WOR) specializes in steel processing, pressure cylinders, and engineered cabs for commercial markets.
Why Are We Out on WOR?
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Products and services are facing significant end-market challenges during this cycle as sales have declined by 19.7% annually over the last five years
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Earnings per share have contracted by 25.3% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
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Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Worthington is trading at $40.34 per share, or 8.5x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why WOR doesn’t pass our bar .
FTI Consulting (FCN)
Market Cap: $5.67 billion
With roots dating back to 1982 and a name that stands for "Forensic Technologies International," FTI Consulting (NYSE:FCN) is a global business advisory firm that helps organizations manage change, mitigate risk, and resolve financial, legal, operational, and regulatory disputes.
Why Does FCN Give Us Pause?
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Estimated sales growth of 1.1% for the next 12 months implies demand will slow from its two-year trend
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Efficiency has decreased over the last five years as its adjusted operating margin fell by 2.1 percentage points
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Free cash flow margin dropped by 2.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $152.60 per share, FTI Consulting trades at 18.5x forward price-to-earnings. To fully understand why you should be careful with FCN, check out our full research report (it’s free) .
One Small-Cap Stock to Buy:
Aris Water (ARIS)
Market Cap: $923 million
Primarily serving the oil and gas industry, Aris Water (NYSE:ARIS) is a provider of water handling and recycling solutions.
Why Do We Love ARIS?
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Offerings are difficult to replicate at scale and result in a best-in-class gross margin of 54.9%
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Incremental sales significantly boosted profitability as its annual earnings per share growth of 33.6% over the last two years outstripped its revenue performance
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Free cash flow turned positive over the last five years, showing the company has crossed a key inflection point
Aris Water’s stock price of $29.79 implies a valuation ratio of 17x forward price-to-earnings. Is now a good time to buy? See for yourself in our full research report, it’s free .
Stocks We Like Even More
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat by checking out 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 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 Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free .
