Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
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. Keeping that in mind, here is one small-cap stock that could be the next 100 bagger and two that may have trouble.
Two Small-Cap Stocks to Sell:
Gorman-Rupp (GRC)
Market Cap: $966.1 million
Powering fluid dynamics since 1934, Gorman-Rupp (NYSE: GRC) has evolved from its Ohio origins into a global manufacturer and seller of pumps and pump systems.
Why Are We Hesitant About GRC?
- Muted 7.1% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Estimated sales growth of 3.8% for the next 12 months implies demand will slow from its two-year trend
- 4.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Gorman-Rupp’s stock price of $36.74 implies a valuation ratio of 17.1x forward P/E. Read our free research report to see why you should think twice about including GRC in your portfolio.
AerSale (ASLE)
Market Cap: $285.9 million
Providing a one-stop shop that integrates multiple services and product offerings, AerSale (NASDAQ: ASLE) delivers full-service support to mid-life commercial aircraft.
Why Do We Avoid ASLE?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2% annually over the last five years
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
AerSale is trading at $6.09 per share, or 13x forward P/E. Dive into our free research report to see why there are better opportunities than ASLE.
One Small-Cap Stock to Buy:
AZEK (AZEK)
Market Cap: $7.79 billion
With a significant portion of its products made from recycled materials, AZEK (NYSE: AZEK) designs and manufactures goods for outdoor living spaces.
Why Do We Love AZEK?
- Core business can prosper without any help from acquisitions as its organic revenue growth averaged 12.5% over the past two years
- Share buybacks catapulted its annual earnings per share growth to 56.9%, which outperformed its revenue gains over the last two years
- Free cash flow margin expanded by 8.8 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $54.15 per share, AZEK trades at 35.4x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market 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.
