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.
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 are two small-cap stocks that could amplify your portfolio’s returns and one best left ignored.
One Small-Cap Stock to Sell:
Shutterstock (SSTK)
Market Cap: $584.1 million
Originally featuring a library that included many of founder Jon Oringer’s photos, Shutterstock (NYSE: SSTK) is now a digital platform where customers can license and use hundreds of millions of pieces of content.
Why Should You Dump SSTK?
- Decision to emphasize platform growth over monetization has contributed to 87.9% annual declines in its average revenue per request
- Forecasted revenue decline of 19% for the upcoming 12 months implies demand will fall off a cliff
- Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 6.3% annually
At $16.00 per share, Shutterstock trades at 1.3x forward price-to-gross profit. To fully understand why you should be careful with SSTK, check out our full research report (it’s free).
Two Small-Cap Stocks to Watch:
Allison Transmission (ALSN)
Market Cap: $9.44 billion
Helping build race cars at one point, Allison Transmission (NYSE: ALSN) offers transmissions to original equipment manufacturers and fleet operators.
Why Are We Fans of ALSN?
- Impressive 12.4% 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 21.5% exceeded its revenue gains over the last five years
- Robust free cash flow margin of 19.2% gives it many options for capital deployment
Allison Transmission’s stock price of $114.39 implies a valuation ratio of 11.2x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
HCI Group (HCI)
Market Cap: $1.99 billion
Starting as a Florida "take-out" insurer that assumed policies from the state-backed Citizens Property Insurance Corporation, HCI Group (NYSE: HCI) provides property and casualty insurance, primarily homeowners coverage, while leveraging proprietary technology to improve underwriting and claims processing.
Why Is HCI a Good Business?
- Market penetration was impressive this cycle as its net premiums earned expanded by 21.1% annually over the last two years
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 54.9% annually, topping its revenue gains
- Annual book value per share growth of 48.1% over the past two years was outstanding, reflecting strong capital accumulation this cycle
HCI Group is trading at $162.49 per share, or 1.6x forward P/B. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth 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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
