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. Keeping that in mind, here are two small-cap stocks that could amplify your portfolio’s returns and one best left ignored.
One Small-Cap Stock to Sell:
Encore Capital Group (ECPG)
Market Cap: $1.72 billion
Operating in the often misunderstood world of debt collection since 1999, Encore Capital Group (NASDAQ: ECPG) purchases portfolios of defaulted consumer debt at deep discounts and works with individuals to recover these obligations while helping them toward financial recovery.
Why Is ECPG Not Exciting?
- Sales trends were unexciting over the last five years as its 2.6% annual growth was below the typical financials company
- Earnings per share lagged its peers over the last five years as they only grew by 3.7% annually
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Encore Capital Group is trading at $93.34 per share, or 7.5x forward P/E. If you’re considering ECPG for your portfolio, see our FREE research report to learn more.
Two Small-Cap Stocks to Watch:
FirstCash (FCFS)
Market Cap: $9.57 billion
Offering a financial lifeline to the unbanked and credit-constrained since 1988, FirstCash (NASDAQ: FCFS) operates pawn stores across the U.S. and Latin America while also providing retail point-of-sale payment solutions for credit-constrained consumers.
Why Should FCFS Be on Your Watchlist?
- Market share has increased this cycle as its 19.8% annual revenue growth over the last five years was exceptional
- Performance over the past five years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 26.5% outpaced its revenue gains
- Industry-leading 13% return on equity demonstrates management’s skill in finding high-return investments
At $217.50 per share, FirstCash trades at 19.4x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Cactus (WHD)
Market Cap: $4.07 billion
Named for the spiky wellhead equipment that reminded founders of desert cacti, Cactus (NYSE: WHD) manufactures wellheads, valves, and spoolable pipes used in drilling and producing oil and gas wells.
Why Are We Positive on WHD?
- Annual revenue growth of 23.2% over the past nine years was outstanding, reflecting market share gains this cycle
- EBITDA margin improvement of 2.3 percentage points over the last five years demonstrates its ability to scale efficiently
- WHD is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Cactus’s stock price of $50.69 implies a valuation ratio of 17.4x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
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 (+1,326% 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.
