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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here is one small-cap stock that could be the next big thing and two that may have trouble.
Two Small-Cap Stocks to Sell:
Meritage Homes (MTH)
Market Cap: $4.78 billion
Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE: MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.
Why Do We Steer Clear of MTH?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 34.5% declines over the past two years
- Earnings per share have dipped by 19.3% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Eroding returns on capital suggest its historical profit centers are aging
At $70.28 per share, Meritage Homes trades at 11.4x forward P/E. Check out our free in-depth research report to learn more about why MTH doesn’t pass our bar.
Peoples Bancorp (PEBO)
Market Cap: $1.14 billion
Founded in 1902 in Ohio and expanding through both organic growth and acquisitions, Peoples Bancorp (NASDAQ: PEBO) is a financial holding company that provides banking, insurance, equipment leasing, and investment services to consumers and businesses.
Why Are We Cautious About PEBO?
- Muted 3.5% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Net interest margin dropped by 45.3 basis points (100 basis points = 1 percentage point) over the last two years, implying the firm’s loan book profitability fell as competitors entered the market
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 12.4% annually while its revenue grew
Peoples Bancorp is trading at $32.60 per share, or 0.9x forward P/B. Read our free research report to see why you should think twice about including PEBO in your portfolio.
One Small-Cap Stock to Watch:
Federated Hermes (FHI)
Market Cap: $3.97 billion
With roots dating back to 1955 and a pioneering role in money market funds, Federated Hermes (NYSE: FHI) is an investment management firm that offers a wide range of funds and strategies for institutional and individual investors.
Why Are We Fans of FHI?
- Share repurchases over the last two years enabled its annual earnings per share growth of 21% to outpace its revenue gains
- Industry-leading 25.3% return on equity demonstrates management’s skill in finding high-return investments
Federated Hermes’s stock price of $53.72 implies a valuation ratio of 10.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in 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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
