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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, 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:
Fortune Brands (FBIN)
Market Cap: $6.24 billion
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE:FBIN) makes plumbing, security, and outdoor living products.
Why Are We Out on FBIN?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Sales over the last two years were less profitable as its earnings per share fell by 9.5% annually while its revenue was flat
- Free cash flow margin dropped by 6.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Fortune Brands’s stock price of $53.05 implies a valuation ratio of 12.8x forward P/E. Check out our free in-depth research report to learn more about why FBIN doesn’t pass our bar.
Meritage Homes (MTH)
Market Cap: $4.90 billion
Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE:MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.
Why Should You Dump MTH?
- Backlog has dropped by 36.5% on average over the past two years, suggesting it’s losing orders as competition picks up
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.6 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $68.50 per share, Meritage Homes trades at 9.2x forward P/E. Dive into our free research report to see why there are better opportunities than MTH.
One Small-Cap Stock to Watch:
Euronet Worldwide (EEFT)
Market Cap: $3.43 billion
Operating a global network of over 47,000 ATMs and 821,000 point-of-sale terminals across more than 60 countries, Euronet Worldwide (NASDAQ:EEFT) provides electronic payment solutions including ATM services, prepaid product processing, and international money transfer services.
Why Do We Like EEFT?
- Decent 9.8% annual revenue growth over the last five years beat most of its peers, showing customers find value in its products and services
- Share repurchases over the last five years enabled its annual earnings per share growth of 21% to outpace its revenue gains
- Industry-leading 18.2% return on equity demonstrates management’s skill in finding high-return investments
Euronet Worldwide is trading at $86.77 per share, or 8.2x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.
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 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-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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