Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
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. Keeping that in mind, 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:
Ruger (RGR)
Market Cap: $631.6 million
Founded in 1949, Ruger (NYSE: RGR) is an American manufacturer of firearms for the commercial sporting market.
Why Do We Pass on RGR?
- Sales tumbled by 2.6% annually over the last five years, showing consumer trends are working against it
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $40.20 per share, Ruger trades at 1.2x trailing 12-month price-to-sales. Dive into our free research report to see why there are better opportunities than RGR.
A. O. Smith (AOS)
Market Cap: $8.00 billion
Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE: AOS) manufactures water heating and treatment products for various industries.
Why Are We Wary of AOS?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Earnings per share have contracted by 1.6% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Eroding returns on capital suggest its historical profit centers are aging
A. O. Smith’s stock price of $58 implies a valuation ratio of 15x forward P/E. Read our free research report to see why you should think twice about including AOS in your portfolio.
One Small-Cap Stock to Buy:
AZZ (AZZ)
Market Cap: $4.22 billion
Responsible for projects like nuclear facilities, AZZ (NYSE: AZZ) is a provider of metal coating and power infrastructure solutions.
Why Will AZZ Beat the Market?
- Market share has increased this cycle as its 14.5% annual revenue growth over the last five years was exceptional
- Earnings per share have massively outperformed its peers over the last five years, increasing by 23.9% annually
- Free cash flow margin jumped by 23 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
AZZ is trading at $141.17 per share, or 20.7x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
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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.
