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.
ACV Auctions (ACVA)
Market Cap: $2.75 billion
Founded in 2014, ACV Auctions (NASDAQ: ACVA) is an online auction marketplace for car dealers and wholesalers to buy and sell used cars.
Why Does ACVA Fall Short?
- High servicing costs result in an inferior gross margin of 25.1% that must be offset through higher volumes
- Expensive marketing campaigns hurt its profitability and make us wonder what would happen if it let up on the gas
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
ACV Auctions is trading at $16.10 per share, or 30.1x forward EV/EBITDA. Check out our free in-depth research report to learn more about why ACVA doesn’t pass our bar.
Orion (ORN)
Market Cap: $339.4 million
Established in 1994, Orion (NYSE: ORN) provides construction services for marine infrastructure and industrial projects.
Why Should You Sell ORN?
- Sales trends were unexciting over the last five years as its 2.4% annual growth was below the typical industrials company
- Gross margin of 9.3% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Low free cash flow margin of -0.2% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $8.58 per share, Orion trades at 52.9x forward P/E. To fully understand why you should be careful with ORN, check out our full research report (it’s free).
Genpact (G)
Market Cap: $7.75 billion
Originally spun off from General Electric in 2005 to provide business process services, Genpact (NYSE: G) is a global professional services firm that helps businesses transform their operations through digital technology, AI, and data analytics solutions.
Why Does G Give Us Pause?
- Estimated sales growth of 4% for the next 12 months is soft and implies weaker demand
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 9.4% annually
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 4 percentage points
Genpact’s stock price of $44.31 implies a valuation ratio of 12.3x forward P/E. If you’re considering G 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-micro-cap company Tecnoglass (+1,754% 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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