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:

Generac (GNRC)

Market Cap: $8.90 billion

With its name deriving from a combination of “generating” and “AC”, Generac (NYSE: GNRC) offers generators and other power products for residential, industrial, and commercial use.

Why Do We Steer Clear of GNRC?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
2. Free cash flow margin shrank by 7.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Eroding returns on capital suggest its historical profit centers are aging

Generac is trading at $150.59 per share, or 18.5x forward P/E. Read our free research report to see why you should think twice about including GNRC in your portfolio.

THOR Industries (THO)

Market Cap: $4.99 billion

Created through the acquisition and merger of various RV manufacturers, THOR Industries manufactures and sells a range of recreational vehicles, including motorhomes and travel trailers, catering to consumers seeking the freedom and comfort of the RV lifestyle.

Why Are We Out on THO?

1. Sales tumbled by 11.4% annually over the last two years, showing market trends are working against its favor during this cycle
2. Earnings per share have contracted by 36.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Waning returns on capital imply its previous profit engines are losing steam

THOR Industries’s stock price of $93.80 implies a valuation ratio of 19.3x forward P/E. Dive into our free research report to see why there are better opportunities than THO.

One Small-Cap Stock to Watch:

Hamilton Insurance Group (HG)

Market Cap: $2.15 billion

Founded in 2013 and operating through three distinct underwriting platforms across four countries, Hamilton Insurance Group (NYSE: HG) operates global specialty insurance and reinsurance platforms across Lloyd's, Ireland, Bermuda, and the United States.

Why Do We Like HG?

1. Annual revenue growth of 36.7% over the last two years was superb and indicates its market share increased during this cycle
2. Impressive 26.1% annual net premiums earned growth over the last two years indicates it’s winning market share this cycle
3. Pre-tax profits increased over the last two years as the company gained some leverage on its fixed costs and became more efficient

At $21.10 per share, Hamilton Insurance Group trades at 0.8x forward P/B. Is now a good time to buy? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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.

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