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 amplify your portfolio’s returns and one that could be down big.

One Small-Cap Stock to Sell:

Taylor Morrison Home (TMHC)

Market Cap: $6.56 billion

Named “America’s Most Trusted Home Builder” in 2019, Taylor Morrison Home (NYSE: TMHC) builds single family homes and communities across the United States.

Why Are We Hesitant About TMHC?

1. Demand cratered as it couldn’t win new orders over the past two years, leading to an average 13% decline in its backlog
2. Earnings per share have contracted by 3.2% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. 9.4 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

Taylor Morrison Home is trading at $65.39 per share, or 7.5x forward P/E. If you’re considering TMHC for your portfolio, see our FREE research report to learn more.

Two Small-Cap Stocks to Watch:

EXL (EXLS)

Market Cap: $7.39 billion

Originally founded as an outsourcing company in 1999 before evolving into a technology-focused enterprise, EXL (NASDAQ: EXLS) provides data analytics and AI-powered digital operations solutions that help businesses transform their operations and make better decisions.

Why Is EXLS a Good Business?

1. Annual revenue growth of 13.8% over the past five years was outstanding, reflecting market share gains this cycle
2. Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
3. Strong free cash flow margin of 11.5% enables it to reinvest or return capital consistently

At $45.43 per share, EXL trades at 23.5x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.

FB Financial (FBK)

Market Cap: $2.17 billion

Founded in 1906 and operating through more than a century of economic cycles, FB Financial (NYSE: FBK) operates FirstBank, providing commercial and consumer banking services across Tennessee, Kentucky, Alabama, and North Georgia.

Why Are We Positive On FBK?

1. Unique value proposition resonates with borrowers, as seen in its above-market 9.8% annual net interest income growth over the last four years
2. Demand for the next 12 months is expected to accelerate above its four-year trend as Wall Street forecasts robust net interest income growth of 23.9%
3. Earnings per share have massively outperformed its peers over the last two years, increasing by 7.7% annually

FB Financial’s stock price of $47.50 implies a valuation ratio of 1.3x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio 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-micro-cap company Kadant (+351% 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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