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.
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 could be down big.
Two small-cap stocks to sell:
Surgery Partners (SGRY)
Market cap: $3.01 billion
With more than 180 locations across 33 states serving as alternatives to traditional hospital settings, Surgery Partners (NASDAQ: SGRY) operates a national network of outpatient surgical facilities including ambulatory surgery centers and short-stay surgical hospitals.
Why Are We Wary of SGRY?
- Weak unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Sales are projected to tank by 14.4% over the next 12 months as demand evaporates
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Surgery Partners is trading at $23.18 per share, or 96.7x forward P/E. Read our free research report to see why you should think twice about including SGRY in your portfolio.
Atlas Energy Solutions (AESI)
Market cap: $666.4 million
Building the world's first long-haul proppant conveyor system to reduce truck traffic, Atlas Energy Solutions (NYSE: AESI) mines and processes sand used as proppant to prop open fractures in oil and gas wells during hydraulic fracturing.
Why Do We Avoid AESI?
- Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 40.8 percentage points
- Negative free cash flow raises questions about the return timeline for its investments
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Atlas Energy Solutions’s stock price of $5.32 implies a valuation ratio of 6.9x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than AESI.
One small-cap stock to watch:
Kennametal (KMT)
Market cap: $1.79 billion
Involved in manufacturing hard tips of anti-tank projectiles in World War II, Kennametal (NYSE: KMT) is a provider of industrial materials and tools for various sectors.
Why Does KMT Stand Out?
- Core business is healthy and doesn’t need acquisitions to boost sales as its organic revenue growth averaged 14.3% over the past two years
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Earnings growth has massively outpaced its peers over the last two years as its EPS has compounded at 137% annually
At $23.45 per share, Kennametal trades at 9.7x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
High-quality stocks for all market conditions
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
