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. Keeping that in mind, here is one small-cap stock that could be the next 100 bagger and two best left ignored.
Two Small-Cap Stocks to Sell:
Hayward (HAYW)
Market Cap: $3.50 billion
Credited with introducing the first variable-speed pool pump, Hayward (NYSE: HAYW) makes residential and commercial pool equipment and accessories.
Why Is HAYW Not Exciting?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
- Free cash flow margin dropped by 5.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Hayward’s stock price of $16.14 implies a valuation ratio of 20.8x forward P/E. Dive into our free research report to see why there are better opportunities than HAYW.
Lumen (LUMN)
Market Cap: $4.71 billion
With approximately 350,000 route miles of fiber optic cable spanning North America and the Asia Pacific, Lumen Technologies (NYSE: LUMN) operates a vast fiber optic network that provides communications, cloud connectivity, security, and IT solutions to businesses and consumers.
Why Do We Steer Clear of LUMN?
- Annual sales declines of 9.5% for the past five years show its products and services struggled to connect with the market during this cycle
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 16.4% annually, worse than its revenue
- Free cash flow margin shrank by 9.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Lumen is trading at $4.58 per share, or 1.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including LUMN in your portfolio.
One Small-Cap Stock to Watch:
Yelp (YELP)
Market Cap: $1.95 billion
Founded by PayPal alumni Jeremy Stoppelman and Russel Simmons, Yelp (NYSE: YELP) is an online platform that helps people discover local businesses through crowd-sourced reviews.
Why Are We Fans of YELP?
- Platform is difficult to replicate at scale and leads to a best-in-class gross margin of 91.1%
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 26%, and its operating leverage amplified its profits over the last few years
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 28.4% exceeded its revenue gains over the last three years
At $31.00 per share, Yelp trades at 5.6x forward EV/EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
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-micro-cap company Tecnoglass (+1,754% 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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