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.
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 is one small-cap stock that could amplify your portfolio’s returns and two that may have trouble.
Two Small-Cap Stocks to Sell:
1-800-FLOWERS (FLWS)
Market Cap: $342.2 million
Founded in 1976, 1-800-FLOWERS (NASDAQ: FLWS) is an online retailer of flowers, gifts, and gourmet foods, serving customers globally.
Why Do We Pass on FLWS?
- Products and services aren't resonating with the market as its revenue declined by 9.7% annually over the last two years
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 29.6% annually while its revenue grew
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
1-800-FLOWERS’s stock price of $5.48 implies a valuation ratio of 17x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than FLWS.
Timken (TKR)
Market Cap: $4.33 billion
Established after the founder noticed the difficulty freight wagons had making sharp turns, Timken (NYSE: TKR) is a provider of industrial parts used across various sectors.
Why Are We Out on TKR?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Earnings per share fell by 2.9% annually over the last two years while its revenue was flat, showing each sale was less profitable
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.3 percentage points
Timken is trading at $63.30 per share, or 9.7x forward price-to-earnings. To fully understand why you should be careful with TKR, check out our full research report (it’s free).
One Small-Cap Stock to Buy:
Liquidity Services (LQDT)
Market Cap: $953.5 million
Powering what it calls the "circular economy" with over 5.5 million registered buyers across its platforms, Liquidity Services (NASDAQ: LQDT) operates online marketplaces that connect buyers and sellers of surplus assets, from consumer returns to industrial equipment to government property.
Why Are We Bullish on LQDT?
- Annual revenue growth of 20.4% over the past two years was outstanding, reflecting market share gains this cycle
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Rising returns on capital show management is finding more attractive investment opportunities
At $31 per share, Liquidity Services trades at 17.6x forward EV-to-EBITDA. 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
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.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.