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.
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 100 bagger and two that may have trouble.
Two Small-Cap Stocks to Sell:
Ducommun (DCO)
Market Cap: $1.14 billion
California’s oldest company, Ducommun (NYSE: DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.
Why Should You Sell DCO?
- Average backlog growth of 4.8% over the past two years was mediocre and suggests fewer customers signed long-term contracts
- Poor free cash flow margin of 1.1% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- ROIC of 4.5% reflects management’s challenges in identifying attractive investment opportunities
Ducommun is trading at $76.45 per share, or 20x forward P/E. Check out our free in-depth research report to learn more about why DCO doesn’t pass our bar.
Taboola (TBLA)
Market Cap: $1.13 billion
Often appearing as those "You May Also Like" or "Recommended For You" boxes at the bottom of news articles, Taboola (NASDAQ: TBLA) operates a digital platform that recommends personalized content to users across publisher websites, helping both publishers monetize their sites and advertisers reach target audiences.
Why Does TBLA Worry Us?
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
- Free cash flow margin dropped by 2,531.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $3.75 per share, Taboola trades at 6.6x forward EV-to-EBITDA. If you’re considering TBLA for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Buy:
Inter Parfums (IPAR)
Market Cap: $4.37 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 Do We Love IPAR?
- Annual revenue growth of 16.3% over the past three years was outstanding, reflecting market share gains
- Differentiated product offerings are difficult to replicate at scale and lead to a premier gross margin of 55.6%
- Free cash flow margin jumped by 11.3 percentage points over the last year, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Inter Parfums’s stock price of $135.51 implies a valuation ratio of 24.6x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market 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-small-cap company Comfort Systems (+782% 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
