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.
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 amplify your portfolio’s returns and two best left ignored.
Two Small-Cap Stocks to Sell:
Smith & Wesson (SWBI)
Market Cap: $487.7 million
With a history dating back to 1852, Smith & Wesson (NASDAQ: SWBI) is a firearms manufacturer known for its handguns and rifles.
Why Do We Pass on SWBI?
- Products and services have few die-hard fans as sales have declined by 10.2% annually over the last five years
- 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 $10.95 per share, Smith & Wesson trades at 31.8x forward P/E. To fully understand why you should be careful with SWBI, check out our full research report (it’s free for active Edge members).
Tandem Diabetes (TNDM)
Market Cap: $1.42 billion
With technology that automatically adjusts insulin delivery based on continuous glucose monitoring data, Tandem Diabetes Care (NASDAQ: TNDM) develops and manufactures automated insulin delivery systems that help people with diabetes manage their blood glucose levels.
Why Do We Steer Clear of TNDM?
- Disappointing pump shipments over the past two years indicate demand is soft and that the company may need to revise its strategy
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
Tandem Diabetes is trading at $20.95 per share, or 27.3x forward EV-to-EBITDA. If you’re considering TNDM for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Watch:
Northwest Pipe (NWPX)
Market Cap: $573.7 million
Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe (NASDAQ: NWPX) is a manufacturer of pipeline systems for water infrastructure.
Why Could NWPX Be a Winner?
- Annual revenue growth of 12.5% over the past five years was outstanding, reflecting market share gains this cycle
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Free cash flow margin jumped by 13.7 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Northwest Pipe’s stock price of $59.71 implies a valuation ratio of 16.1x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .
Stocks We Like Even More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check 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 244% over the last five years (as of June 30, 2025).
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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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