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.
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 are two small-cap stocks that could amplify your portfolio’s returns and one that could be down big.
One Small-Cap Stock to Sell:
PacBio (PACB)
Market Cap: $425.8 million
Pioneering what scientists call "HiFi long-read sequencing," recognized as Nature Methods' method of the year for 2022, Pacific Biosciences (NASDAQ:PACB) develops advanced DNA sequencing systems that enable scientists and researchers to analyze genomes with unprecedented accuracy and completeness.
Why Are We Hesitant About PACB?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 8.2% annually over the last two years
- Negative free cash flow raises questions about the return timeline for its investments
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $1.34 per share, PacBio trades at 2.5x forward price-to-sales. Read our free research report to see why you should think twice about including PACB in your portfolio.
Two Small-Cap Stocks to Buy:
Dycom (DY)
Market Cap: $8.80 billion
Working alongside some of the most popular mobile carriers in the world, Dycom (NYSE:DY) builds and maintains telecommunications infrastructure.
Why Do We Love DY?
- Market share has increased this cycle as its 24.6% annual revenue growth over the last two years was exceptional
- Additional sales over the last two years increased its profitability as the 37% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin jumped by 6.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Dycom’s stock price of $292.50 implies a valuation ratio of 15.5x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Morningstar (MORN)
Market Cap: $7.65 billion
Founded in 1984 by Joe Mansueto with just $80,000 in personal savings, Morningstar (NASDAQ:MORN) provides independent investment data, research, and analysis tools that help investors, advisors, and institutions make informed financial decisions.
What Makes MORN Stand Out?
- Annual revenue growth of 10.7% over the last five years was above the sector average and underscores its products and services value to customers
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- ROE punches in at 18.7%, illustrating management’s expertise in identifying profitable investments
Morningstar is trading at $203.82 per share, or 15.7x forward P/E. Is now a good time to buy? Find out 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 (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.