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.
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 may have trouble.
Two Small-Cap Stocks to Sell:
Dayforce (DAY)
Market Cap: $8.54 billion
Founded in 1992 as Ceridian, an outsourced payroll processor and transformed after the 2012 acquisition of Dayforce, Dayforce (NYSE: DAY) is a provider of cloud based payroll and HR software targeted at mid-sized businesses.
Why Are We Hesitant About DAY?
- Sales trends were unexciting over the last three years as its 17.8% annual growth was below the typical software company
- Bad unit economics and steep infrastructure costs are reflected in its gross margin of 50.9%, one of the worst among software companies
- Free cash flow margin is forecasted to shrink by 1.3 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Dayforce’s stock price of $54.99 implies a valuation ratio of 4.2x forward price-to-sales. If you’re considering DAY for your portfolio, see our FREE research report to learn more.
NeoGenomics (NEO)
Market Cap: $709.2 million
Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ: NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.
Why Are We Out on NEO?
- Subscale operations are evident in its revenue base of $689.2 million, meaning it has fewer distribution channels than its larger rivals
- Negative returns on capital show management lost money while trying to expand the business, and its shrinking returns suggest its past profit sources are losing steam
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $5.71 per share, NeoGenomics trades at 22.9x forward P/E. Dive into our free research report to see why there are better opportunities than NEO.
One Small-Cap Stock to Watch:
Lantheus (LNTH)
Market Cap: $3.59 billion
Pioneering the "Find, Fight and Follow" approach to disease management, Lantheus Holdings (NASDAQGM:LNTH) develops and commercializes radiopharmaceuticals and other imaging agents that help healthcare professionals detect, diagnose, and treat diseases.
Why Could LNTH Be a Winner?
- Impressive 35.6% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Free cash flow margin expanded by 22.9 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Returns on capital are climbing as management makes more lucrative bets
Lantheus is trading at $51.87 per share, or 7.7x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
Donald Trump’s April 2024 "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 5 Growth Stocks for this month. 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. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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