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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here is one small-cap stock that could amplify your portfolio’s returns and two that could be down big.
Two Small-Cap Stocks to Sell:
John Bean (JBTM)
Market Cap: $5.82 billion
Tracing back to its invention of the mechanical milk bottle filler in 1884, John Bean (NYSE: JBT) designs, manufactures, and sells equipment used for food processing and aviation.
Why Is JBTM Not Exciting?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Free cash flow margin dropped by 6.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
John Bean is trading at $112.06 per share, or 18.1x forward P/E. Check out our free in-depth research report to learn more about why JBTM doesn’t pass our bar.
Neogen (NEOG)
Market Cap: $1.3 billion
Founded in 1981 and operating at the intersection of food safety and animal health, Neogen (NASDAQ: NEOG) develops and manufactures diagnostic tests and related products to detect dangerous substances in food and pharmaceuticals for animal health.
Why Do We Think NEOG Will Underperform?
- Earnings per share fell by 7.5% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Neogen’s stock price of $5.99 implies a valuation ratio of 11.7x forward P/E. To fully understand why you should be careful with NEOG, check out our full research report (it’s free).
One Small-Cap Stock to Watch:
The Ensign Group (ENSG)
Market Cap: $7.78 billion
Founded in 1999 and named after a naval term for a flag-bearing ship, The Ensign Group (NASDAQ: ENSG) operates skilled nursing facilities, senior living communities, and rehabilitation services across 15 states, primarily serving high-acuity patients recovering from various medical conditions.
Why Do We Like ENSG?
- Average unit sales growth of 13.2% over the past two years reflects steady demand for its products
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
- Earnings per share grew by 18.4% annually over the last five years and trumped its peers
At $136.28 per share, The Ensign Group trades at 21.1x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free.
