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.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here is one small-cap stock that could be the next big thing and two that could be down big.
Two Small-Cap Stocks to Sell:
MYR Group (MYRG)
Market Cap: $3.38 billion
Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ: MYRG) is a specialty contractor in the electrical construction industry.
Why Are We Hesitant About MYRG?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 4.3% declines over the past two years
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 10.8%
- Diminishing returns on capital suggest its earlier profit pools are drying up
MYR Group is trading at $215 per share, or 27.2x forward P/E. To fully understand why you should be careful with MYRG, check out our full research report (it’s free for active Edge members).
Essent Group (ESNT)
Market Cap: $5.97 billion
Serving as a crucial bridge between homebuyers and the American dream of homeownership, Essent Group (NYSE: ESNT) provides private mortgage insurance and title services that enable lenders to offer home loans with down payments of less than 20%.
Why Are We Wary of ESNT?
- Growth in insurance policies was lackluster over the last five years as its 3.6% annual growth underperformed the typical financial institution
- Expenses have increased as a percentage of revenue over the last two years as its pre-tax profit margin fell by 12.5 percentage points
- Annual earnings per share growth of 4.9% underperformed its revenue over the last two years, showing its incremental sales were less profitable
At $60.57 per share, Essent Group trades at 1x forward P/B. Check out our free in-depth research report to learn more about why ESNT doesn’t pass our bar.
One Small-Cap Stock to Buy:
Western Alliance Bancorporation (WAL)
Market Cap: $8.42 billion
Operating through five distinct regional banking divisions across the western United States, Western Alliance Bancorporation (NYSE: WAL) provides commercial banking, treasury management, mortgage services, and specialized financial solutions through its banking divisions and subsidiaries.
Why Are We Backing WAL?
- Market share has increased this cycle as its 19.8% annual net interest income growth over the last five years was exceptional
- Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 12.5% annually
- Annual tangible book value per share growth of 15.1% over the last five years was superb and indicates its capital strength increased during this cycle
Western Alliance Bancorporation’s stock price of $77.35 implies a valuation ratio of 1.2x forward P/B. Is now the right time to buy? Find out in our full 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 6 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-small-cap company Exlservice (+354% 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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