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:
Genco (GNK)
Market Cap: $705 million
Headquartered in NYC, Genco (NYSE: GNK) is a shipping company that transports dry bulk cargo along worldwide maritime routes.
Why Are We Cautious About GNK?
- Number of owned vessels has disappointed over the past two years, indicating weak demand for its offerings
- Earnings per share have contracted by 61.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Free cash flow margin shrank by 26.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Genco’s stock price of $16.41 implies a valuation ratio of 18.8x forward P/E. If you’re considering GNK for your portfolio, see our FREE research report to learn more.
BrightSpring Health Services (BTSG)
Market Cap: $5.88 billion
Founded in 1974, BrightSpring Health Services (NASDAQ: BTSG) offers home health care, hospice, neuro-rehabilitation, and pharmacy services.
Why Does BTSG Worry Us?
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 2.4 percentage points
- 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 5.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $29.47 per share, BrightSpring Health Services trades at 26.8x forward P/E. Read our free research report to see why you should think twice about including BTSG in your portfolio.
One Small-Cap Stock to Watch:
Energy Recovery (ERII)
Market Cap: $815 million
Having saved far more than a trillion gallons of water, Energy Recovery (NASDAQ: ERII) provides energy recovery devices to the water treatment, oil and gas, and chemical processing sectors.
Why Could ERII Be a Winner?
- Annual revenue growth of 15.2% over the last two years was superb and indicates its market share increased during this cycle
- Offerings are difficult to replicate at scale and lead to a best-in-class gross margin of 68%
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
Energy Recovery is trading at $15.32 per share, or 19.9x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
Stocks We Like Even More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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 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. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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