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. That said, here is one small-cap stock that could amplify your portfolio’s returns and two best left ignored.

Two Small-Cap Stocks to Sell:

A. O. Smith (AOS)

Market Cap: $9.90 billion

Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE: AOS) manufactures water heating and treatment products for various industries.

Why Are We Wary of AOS?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 2.7% annually
3. Waning returns on capital imply its previous profit engines are losing steam

A. O. Smith is trading at $70.69 per share, or 17.8x forward P/E. Check out our free in-depth research report to learn more about why AOS doesn’t pass our bar.

Enviri (NVRI)

Market Cap: $712.1 million

Cooling America’s first indoor ice rink in the 19th century, Enviri (NYSE: NVRI) offers steel and waste handling services.

Why Do We Pass on NVRI?

1. Sales trends were unexciting over the last two years as its 2.7% annual growth was below the typical industrials company
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

At $8.69 per share, Enviri trades at 2.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including NVRI in your portfolio.

One Small-Cap Stock to Watch:

PennyMac Financial Services (PFSI)

Market Cap: $5.08 billion

Founded during the 2008 financial crisis to help address the mortgage market meltdown, PennyMac Financial Services (NYSE: PFSI) is a specialty financial services company that originates, services, and manages investments related to residential mortgage loans in the United States.

Why Could PFSI Be a Winner?

1. Annual net interest income growth of 39.9% over the last five years was superb and indicates its market share increased during this cycle
2. Incremental sales significantly boosted profitability as its annual earnings per share growth of 66.2% over the last two years outstripped its revenue performance
3. Annual tangible book value per share growth of 18.8% over the last five years was superb and indicates its capital strength increased during this cycle

PennyMac Financial Services’s stock price of $98.44 implies a valuation ratio of 1.2x forward P/B. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

Stocks We Like Even More

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound 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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