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.
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 may have trouble.
Two Small-Cap Stocks to Sell:
Fluence Energy (FLNC)
Market Cap: $3.22 billion
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ: FLNC) helps store renewable energy sources with battery systems.
Why Are We Wary of FLNC?
- Revenue growth over the past two years was nullified by the company’s new share issuances as its earnings per share fell by 3.6% annually
- Cash-burning history makes us doubt the long-term viability of its business model
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $18.05 per share, Fluence Energy trades at 27.6x forward EV-to-EBITDA. If you’re considering FLNC for your portfolio, see our FREE research report to learn more.
Collegium Pharmaceutical (COLL)
Market Cap: $1.11 billion
Pioneering abuse-deterrent technology in a field plagued by addiction concerns, Collegium Pharmaceutical (NASDAQ: COLL) develops and markets specialty medications for treating moderate to severe pain, including abuse-deterrent opioid formulations.
Why Does COLL Fall Short?
- Modest revenue base of $796.3 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Day-to-day expenses have swelled relative to revenue over the last two years as its adjusted operating margin fell by 6.4 percentage points
- Stagnant returns on capital show management has failed to improve the company’s business quality
Collegium Pharmaceutical’s stock price of $37.75 implies a valuation ratio of 4.8x forward P/E. Read our free research report to see why you should think twice about including COLL in your portfolio.
One Small-Cap Stock to Buy:
Shift4 (FOUR)
Market Cap: $3.13 billion
Starting as a payment gateway provider in 1999 and now processing over $200 billion in annual payment volume, Shift4 Payments (NYSE: FOUR) provides integrated payment processing solutions and software that help businesses accept and manage transactions across in-store, online, and mobile channels.
Why Do We Love FOUR?
- Market share has increased this cycle as its 27.8% annual revenue growth over the last two years was exceptional
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 34.1% annually, topping its revenue gains
- Industry-leading 16% return on equity demonstrates management’s skill in finding high-return investments
Shift4 is trading at $51.36 per share, or 8.9x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive 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.
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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 Kadant (+351% five-year return). Find your next big winner with StockStory today.
