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. Keeping that in mind, 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:
Alarm.com (ALRM)
Market Cap: $2.23 billion
Processing over 325 billion data points annually from more than 150 million connected devices, Alarm.com (NASDAQ: ALRM) provides cloud-based platforms that enable residential and commercial property owners to remotely monitor and control their security, video, energy, and other connected devices.
Why Do We Think ALRM Will Underperform?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 8.4% underwhelmed
- Estimated sales growth of 3.6% for the next 12 months implies demand will slow from its two-year trend
- Operating margin didn’t move over the last year, showing it couldn’t increase its efficiency
Alarm.com is trading at $45.01 per share, or 2.4x forward price-to-sales. To fully understand why you should be careful with ALRM, check out our full research report (it’s free).
Byline Bancorp (BY)
Market Cap: $1.52 billion
Ranking as the fifth most active Small Business Administration lender in the country, Byline Bancorp (NYSE: BY) is a Chicago-based bank that provides banking services to small and medium-sized businesses, commercial real estate developers, and consumers.
Why Does BY Give Us Pause?
- Muted 7.1% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Estimated net interest income growth of 3.1% for the next 12 months implies demand will slow from its five-year trend
- Annual earnings per share growth of 4.6% underperformed its revenue over the last two years, showing its incremental sales were less profitable
Byline Bancorp’s stock price of $33.52 implies a valuation ratio of 1.1x forward P/B. Check out our free in-depth research report to learn more about why BY doesn’t pass our bar.
One Small-Cap Stock to Buy:
OSI Systems (OSIS)
Market Cap: $3.50 billion
With security scanners deployed at airports and borders worldwide and patient monitors used in hospitals across the globe, OSI Systems (NASDAQ: OSIS) designs and manufactures specialized electronic systems for security screening, patient monitoring, and optoelectronic applications.
Why Will OSIS Beat the Market?
- Impressive 10.9% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Share repurchases over the last five years enabled its annual earnings per share growth of 14.5% to outpace its revenue gains
- Rising returns on capital show management is finding more attractive investment opportunities
At $212.57 per share, OSI Systems trades at 19.3x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today.
