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 amplify your portfolio’s returns and two best left ignored.
Two Small-Cap Stocks to Sell:
PagerDuty (PD)
Market Cap: $1.49 billion
Started by three former Amazon engineers, PagerDuty (NYSE: PD) is a software-as-a-service platform that helps companies respond to IT incidents fast and make sure that any downtime is minimized.
Why Are We Cautious About PD?
- Products, pricing, or go-to-market strategy may need some adjustments as its 7% average billings growth over the last year was weak
- Estimated sales growth of 6.2% for the next 12 months implies demand will slow from its three-year trend
- Persistent operating margin losses suggest the business manages its expenses poorly
PagerDuty is trading at $16.14 per share, or 2.9x forward price-to-sales. Read our free research report to see why you should think twice about including PD in your portfolio.
Meritage Homes (MTH)
Market Cap: $5.12 billion
Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE: MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.
Why Do We Steer Clear of MTH?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 36.5% decline in its backlog
- 6.6 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
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $71.78 per share, Meritage Homes trades at 8.3x forward P/E. To fully understand why you should be careful with MTH, check out our full research report (it’s free).
One Small-Cap Stock to Watch:
Stock Yards Bank (SYBT)
Market Cap: $2.17 billion
Founded in 1904 in Louisville and named after the city's historic livestock market district, Stock Yards Bancorp (NASDAQ: SYBT) operates a regional bank providing commercial banking, wealth management, and trust services across Kentucky, Indiana, and Ohio.
Why Should SYBT Be on Your Watchlist?
- Annual net interest income growth of 16.9% over the last five years was superb and indicates its market share increased during this cycle
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 6.7% over the last two years outstripped its revenue performance
- Projected tangible book value per share growth of 23.5% for the next 12 months is above its two-year trend, pointing to accelerating profitability
Stock Yards Bank’s stock price of $73.76 implies a valuation ratio of 2.1x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
Trump’s April 2024 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 9 Market-Beating Stocks. 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
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
