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. That said, 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:
Installed Building Products (IBP)
Market Cap: $5.56 billion
Founded in 1977, Installed Building Products (NYSE: IBP) is a company specializing in the installation of insulation, waterproofing, and other complementary building products for residential and commercial construction.
Why Does IBP Worry Us?
- 2.4% annual revenue growth over the last two years was slower than its industrials peers
- Anticipated sales growth of 1.5% for the next year implies demand will be shaky
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 2.6% annually
Installed Building Products’s stock price of $226.94 implies a valuation ratio of 21.4x forward P/E. Check out our free in-depth research report to learn more about why IBP doesn’t pass our bar.
Enact Holdings (ACT)
Market Cap: $5.87 billion
Playing a critical role in helping first-time homebuyers access the housing market, Enact Holdings (NASDAQ: ACT) provides private mortgage insurance that enables lenders to offer home loans with lower down payments while protecting against borrower defaults.
Why Should You Sell ACT?
- Insurance offerings faced market headwinds this cycle, reflected in stagnant net premiums earned over the last five years
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 6.7% annually
At $44.65 per share, Enact Holdings trades at 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than ACT.
One Small-Cap Stock to Buy:
Guidewire Software (GWRE)
Market Cap: $9.87 billion
With its systems powering the operations of hundreds of insurance brands across 42 countries, Guidewire Software (NYSE: GWRE) provides a technology platform that helps property and casualty insurance companies manage their core operations, digital engagement, and analytics.
Why Will GWRE Beat the Market?
- Annual revenue growth of 21.7% over the last two years was superb and indicates its market share is rising
- Billings have averaged 20.6% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
Guidewire Software is trading at $110.26 per share, or 5.7x forward price-to-sales. 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
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth 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.
