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. Keeping that in mind, here are two small-cap stocks that could be the next 100 baggers and one best left ignored.
One Small-Cap Stock to Sell:
OPENLANE (KAR)
Market Cap: $2.22 billion
Formerly known as KAR Auction Services until its 2023 rebranding, OPENLANE (NYSE: KAR) operates digital marketplaces that connect sellers and buyers of used vehicles across North America and Europe, facilitating transparent wholesale transactions.
Why Do We Think Twice About KAR?
- Annual sales declines of 8.5% for the past five years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
OPENLANE’s stock price of $20.79 implies a valuation ratio of 21.4x forward price-to-earnings. To fully understand why you should be careful with KAR, check out our full research report (it’s free).
Two Small-Cap Stocks to Buy:
Inter Parfums (IPAR)
Market Cap: $4.14 billion
With licenses to produce colognes and perfumes under brands such as Kate Spade, Van Cleef & Arpels, and Abercrombie & Fitch, Inter Parfums (NASDAQ: IPAR) manufactures and distributes fragrances worldwide.
Why Will IPAR Outperform?
- Impressive 18.2% annual revenue growth over the last three years indicates it's winning market share
- Differentiated product offerings are difficult to replicate at scale and lead to a stellar gross margin of 58.7%
- Free cash flow margin jumped by 5.1 percentage points over the last year, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Inter Parfums is trading at $129.68 per share, or 24.1x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.
SPX Technologies (SPXC)
Market Cap: $6.21 billion
SPX Technologies (NYSE: SPXC) is an industrial conglomerate catering to the energy, manufacturing, automotive, and aerospace sectors.
Why Is SPXC a Top Pick?
- Average organic revenue growth of 9.8% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 34.3% outpaced its revenue gains
- Free cash flow margin expanded by 5.1 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $132.98 per share, SPX Technologies trades at 21.9x forward price-to-earnings. Is now the time to initiate a position? See for yourself in our comprehensive 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 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
