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. That said, here is one small-cap stock that could be the next big thing and two that may have trouble.
Two Small-Cap Stocks to Sell:
Applied Industrial (AIT)
Market Cap: $8.72 billion
Formerly called The Ohio Ball Bearing Company, Applied Industrial (NYSE:AIT) distributes industrial products–everything from power tools to industrial valves–and services to a wide variety of industries.
Why Does AIT Fall Short?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Anticipated sales growth of 6.7% for the next year implies demand will be shaky
- 2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Applied Industrial is trading at $226.43 per share, or 22.3x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than AIT.
Exponent (EXPO)
Market Cap: $4.22 billion
With a team of over 800 consultants holding advanced degrees in 90+ technical disciplines, Exponent (NASDAQ:EXPO) is a science and engineering consulting firm that investigates complex problems and provides expert analysis for clients across various industries.
Why Does EXPO Give Us Pause?
- Revenue base of $518.5 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.4% annually
- Eroding returns on capital suggest its historical profit centers are aging
Exponent’s stock price of $83 implies a valuation ratio of 39.6x forward price-to-earnings. Read our free research report to see why you should think twice about including EXPO in your portfolio.
One Small-Cap Stock to Watch:
Universal Display (OLED)
Market Cap: $7.43 billion
Serving major consumer electronics manufacturers, Universal Display (NASDAQ:OLED) is a provider of organic light emitting diode (OLED) technologies used in display and lighting applications.
Why Could OLED Be a Winner?
- Offerings are mission-critical for businesses and lead to a best-in-class gross margin of 75.1%
- Excellent operating margin of 37.3% highlights the efficiency of its business model
- ROIC punches in at 41.1%, illustrating management’s expertise in identifying profitable investments
At $156.71 per share, Universal Display trades at 30.2x forward price-to-earnings. Is now the time to initiate a position? Find out in our full 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 9 Market-Beating Stocks. 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.