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 amplify your portfolio’s returns and two that may have trouble.
Two Small-Cap Stocks to Sell:
Penguin Solutions (PENG)
Market Cap: $934 million
Based in the US, Penguin Solutions (NASDAQ: PENG) is a diversified semiconductor company offering memory, digital, and LED products.
Why Does PENG Fall Short?
- Muted 3.7% annual revenue growth over the last five years shows its demand lagged behind its semiconductor peers
- High input costs result in an inferior gross margin of 28.8% that must be offset through higher volumes
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 6.1% for the last two years
Penguin Solutions’s stock price of $17.83 implies a valuation ratio of 8.8x forward P/E. To fully understand why you should be careful with PENG, check out our full research report (it’s free).
Select Medical (SEM)
Market Cap: $2.01 billion
With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE: SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.
Why Does SEM Worry Us?
- Declining admissions over the past two years imply it may need to invest in improvements to get back on track
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 9.3% annually
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $16.25 per share, Select Medical trades at 13.1x forward P/E. Read our free research report to see why you should think twice about including SEM in your portfolio.
One Small-Cap Stock to Buy:
Huron (HURN)
Market Cap: $2.05 billion
Founded in 2002 during a time of significant regulatory change in corporate America, Huron Consulting Group (NASDAQ: HURN) is a professional services company that helps organizations develop growth strategies, optimize operations, and implement digital transformation solutions.
Why Are We Backing HURN?
- Impressive 14.3% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 26.1% exceeded its revenue gains over the last two years
- Free cash flow margin jumped by 9.3 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Huron is trading at $128.85 per share, or 15.4x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
