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. That said, here is one small-cap stock that could be the next big thing and two that could be down big.
Two Small-Cap Stocks to Sell:
Methode Electronics (MEI)
Market Cap: $266.9 million
Founded in 1946, Methode Electronics (NYSE: MEI) is a global supplier of custom-engineered solutions for Original Equipment Manufacturers (OEMs).
Why Should You Dump MEI?
- Annual sales declines of 6.8% for the past two years show its products and services struggled to connect with the market during this cycle
- Free cash flow margin shrank by 11.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Methode Electronics’s stock price of $7.58 implies a valuation ratio of 3.3x forward EV-to-EBITDA. If you’re considering MEI for your portfolio, see our FREE research report to learn more.
Franklin BSP Realty Trust (FBRT)
Market Cap: $850.3 million
Operating as a specialized real estate investment trust (REIT) with roots dating back to 2012, Franklin BSP Realty Trust (NYSE: FBRT) originates and manages a diversified portfolio of commercial real estate debt investments secured by properties in the United States and abroad.
Why Do We Think FBRT Will Underperform?
- Muted 9.4% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 39.7% annually while its revenue grew
- Tangible book value per share tumbled by 6.8% annually over the last five years, showing banking sector trends are working against its favor during this cycle
At $10.29 per share, Franklin BSP Realty Trust trades at 0.7x forward P/B. Check out our free in-depth research report to learn more about why FBRT doesn’t pass our bar.
One Small-Cap Stock to Buy:
DXP (DXPE)
Market Cap: $1.47 billion
Founded during the emergence of Big Oil in Texas, DXP (NASDAQ: DXPE) provides pumps, valves, and other industrial components.
Why Do We Love DXPE?
- Impressive 13% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Operating margin expanded by 5.1 percentage points over the last five years as it scaled and became more efficient
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
DXP is trading at $92.61 per share, or 15.2x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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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