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 is one small-cap stock that could amplify your portfolio’s returns and two that may have trouble.
Two Small-Cap Stocks to Sell:
Penguin Solutions (PENG)
Market Cap: $1.19 billion
Based in the US, Penguin Solutions (NASDAQ: PENG) is a diversified semiconductor company offering memory, digital, and LED products.
Why Should You Dump PENG?
- 4% annual revenue growth over the last five years was slower than its semiconductor peers
- Gross margin of 29.1% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam
Penguin Solutions is trading at $22.50 per share, or 10.8x forward P/E. Read our free research report to see why you should think twice about including PENG in your portfolio.
Diebold Nixdorf (DBD)
Market Cap: $2.11 billion
With roots dating back to 1859 and a presence in over 100 countries, Diebold Nixdorf (NYSE: DBD) provides automated self-service technology, software, and services that help banks and retailers digitize their customer transactions.
Why Are We Hesitant About DBD?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.8% annually over the last five years
- Negative free cash flow raises questions about the return timeline for its investments
- Underwhelming 3% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $57.50 per share, Diebold Nixdorf trades at 13.5x forward P/E. If you’re considering DBD for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Buy:
Wingstop (WING)
Market Cap: $6.02 billion
The passion project of two chicken wing aficionados in Texas, Wingstop (NASDAQ: WING) is a popular fast-food chain known for its flavorful and crispy chicken wings offered in a variety of sauces and seasonings.
Why Are We Backing WING?
- Fast expansion of new restaurants to reach markets with few or no locations is justified by its same-store sales growth
- Same-store sales growth over the past two years shows it’s successfully drawing diners into its restaurants
- Excellent operating margin of 25.5% highlights the efficiency of its business model
Wingstop’s stock price of $220.99 implies a valuation ratio of 49.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - 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 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% 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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