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.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here is one small-cap stock that could be the next big thing and two best left ignored.
Two Small-Cap Stocks to Sell:
Urban Outfitters (URBN)
Market Cap: $4.55 billion
Founded as a purveyor of vintage items, Urban Outfitters (NASDAQ:URBN) now largely sells new apparel and accessories to teens and young adults seeking on-trend fashion.
Why Are We Hesitant About URBN?
- Muted 6.9% annual revenue growth over the last five years shows its demand lagged behind its consumer retail peers
- Modest revenue base of $5.55 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- ROIC of 9.5% reflects management’s challenges in identifying attractive investment opportunities
At $49.73 per share, Urban Outfitters trades at 11.3x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than URBN.
AerSale (ASLE)
Market Cap: $437.4 million
Providing a one-stop shop that integrates multiple services and product offerings, AerSale (NASDAQ:ASLE) delivers full-service support to mid-life commercial aircraft.
Why Are We Out on ASLE?
- Sales tumbled by 8.1% annually over the last two years, showing market trends are working against its favor during this cycle
- Cash-burning history makes us doubt the long-term viability of its business model
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
AerSale is trading at $8.06 per share, or 17.3x forward price-to-earnings. To fully understand why you should be careful with ASLE, check out our full research report (it’s free).
One Small-Cap Stock to Watch:
Parsons (PSN)
Market Cap: $6.50 billion
Delivering aerospace technology during the Cold War-era, Parsons (NYSE:PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.
Why Could PSN Be a Winner?
- Annual revenue growth of 26.8% over the past two years was outstanding, reflecting market share gains this cycle
- Share buybacks catapulted its annual earnings per share growth to 34.5%, which outperformed its revenue gains over the last two years
- Historical investments are beginning to pay off as its returns on capital are growing
Parsons’s stock price of $60.70 implies a valuation ratio of 15.3x forward price-to-earnings. Is now a good time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.