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.
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. That said, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Compass (COMP)
Market Cap: $3.03 billion
Fueled by its mission to replace the "paper-driven, antiquated workflow" of buying a house, Compass (NYSE: COMP) is a digital-first company operating a residential real estate brokerage in the United States.
Why Is COMP Not Exciting?
- Number of principal agents has disappointed over the past two years, indicating weak demand for its offerings
- Poor expense management has led to operating margin losses
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Compass’s stock price of $5.85 implies a valuation ratio of 13.4x forward P/E. To fully understand why you should be careful with COMP, check out our full research report (it’s free).
H&E Equipment Services (HEES)
Market Cap: $3.45 billion
Founded after recognizing a growth trend along the Mississippi River and opportunities developing in the earthmoving and construction equipment business, H&E (NASDAQ: HEES) offers machinery for companies to purchase or rent.
Why Does HEES Worry Us?
- Sales trends were unexciting over the last five years as its 2.1% annual growth was below the typical industrials company
- Earnings per share have contracted by 16% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Low free cash flow margin of 0.5% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $96.57 per share, H&E Equipment Services trades at 6.4x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than HEES.
ASGN (ASGN)
Market Cap: $2.32 billion
Evolving from its roots in IT staffing to become a high-end technology consulting powerhouse, ASGN (NYSE: ASGN) provides specialized IT consulting services and staffing solutions to Fortune 1000 companies and U.S. federal government agencies.
Why Should You Dump ASGN?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.7% annually over the last two years
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Free cash flow margin dropped by 5.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
ASGN is trading at $52.86 per share, or 10.4x forward P/E. If you’re considering ASGN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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 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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.
