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.
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 is one small-cap stock that could amplify your portfolio’s returns and two that may have trouble.
Two Small-Cap Stocks to Sell:
Dropbox (DBX)
Market Cap: $7.62 billion
Originally named after the founders' tendency to "drop" files into a shared folder, Dropbox (NASDAQ: DBX) provides a content collaboration platform that helps individuals and teams store, organize, share, and work on files from anywhere.
Why Does DBX Fall Short?
- Offerings struggled to generate interest as its billings were flat over the last year
- Estimated sales decline of 2% for the next 12 months implies a challenging demand environment
- Efficiency has decreased over the last year as its operating margin fell by 4 percentage points
Dropbox’s stock price of $28.16 implies a valuation ratio of 3.1x forward price-to-sales. To fully understand why you should be careful with DBX, check out our full research report (it’s free).
Park-Ohio (PKOH)
Market Cap: $273.2 million
Based in Cleveland, Park-Ohio (NASDAQ: PKOH) provides supply chain management services, capital equipment, and manufactured components.
Why Does PKOH Worry Us?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Gross margin of 15.4% reflects its high production costs
- Cash-burning history makes us doubt the long-term viability of its business model
At $19.60 per share, Park-Ohio trades at 5.9x forward P/E. Check out our free in-depth research report to learn more about why PKOH doesn’t pass our bar.
One Small-Cap Stock to Watch:
Limbach (LMB)
Market Cap: $1.43 billion
Established in 1901, Limbach (NASDAQ: LMB) provides integrated building systems solutions, including mechanical, electrical, and plumbing services.
Why Are We Positive On LMB?
- Efficiency rose over the last five years as its Operating margin increased by 6.2 percentage points
- Additional sales over the last two years increased its profitability as the 45.1% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin jumped by 5.9 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Limbach is trading at $123.97 per share, or 28.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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 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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