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. Keeping that in mind, here is one small-cap stock that could be the next 100 bagger and two that could be down big.
Two Small-Cap Stocks to Sell:
Evolent Health (EVH)
Market Cap: $357.7 million
Founded in 2011 to transform how healthcare is delivered to patients with complex needs, Evolent Health (NYSE: EVH) provides specialty care management services and technology solutions that help health plans and providers deliver better care for patients with complex conditions.
Why Are We Hesitant About EVH?
- Disappointing average lives on platform over the past two years indicate demand is soft and that the company may need to revise its strategy
- Push for growth has led to negative returns on capital, signaling value destruction, and its decreasing returns suggest its historical profit centers are aging
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $3.21 per share, Evolent Health trades at 14.2x forward P/E. Check out our free in-depth research report to learn more about why EVH doesn’t pass our bar.
Sallie Mae (SLM)
Market Cap: $4.86 billion
Originally created as a government-sponsored enterprise before privatizing in 2004, Sallie Mae (NASDAQ: SLM) is a financial services company that provides private education loans, savings products, and educational resources to help students and families pay for college.
Why Do We Pass on SLM?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Sales over the last five years were less profitable as its earnings per share fell by 1.5% annually while its revenue was flat
Sallie Mae is trading at $25.85 per share, or 8.4x forward P/E. If you’re considering SLM for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Buy:
Gorman-Rupp (GRC)
Market Cap: $2.13 billion
Powering fluid dynamics since 1934, Gorman-Rupp (NYSE: GRC) has evolved from its Ohio origins into a global manufacturer and seller of pumps and pump systems.
Why Should You Buy GRC?
- Impressive 14.7% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 28% annually, topping its revenue gains
- Free cash flow margin increased by 12.1 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Gorman-Rupp’s stock price of $79.32 implies a valuation ratio of 26.5x forward P/E. Is now a good time to buy? 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.
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 (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
