Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
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:
GEO Group (GEO)
Market Cap: $3.35 billion
With a global footprint spanning three continents and approximately 81,000 beds across 100 facilities, GEO Group (NYSE: GEO) operates secure facilities, processing centers, and reentry services for government agencies in the United States, Australia, and South Africa.
Why Do We Avoid GEO?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 31.5% annually
- Free cash flow margin shrank by 8.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
GEO Group’s stock price of $24.35 implies a valuation ratio of 13.6x forward P/E. To fully understand why you should be careful with GEO, check out our full research report (it’s free).
Fortrea (FTRE)
Market Cap: $493.4 million
Spun off from Labcorp in 2023 to focus exclusively on clinical research services, Fortrea (NASDAQ: FTRE) is a contract research organization that helps pharmaceutical, biotech, and medical device companies develop and bring their products to market through clinical trials and support services.
Why Do We Think FTRE Will Underperform?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5.6% annually over the last two years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Fortrea is trading at $5.45 per share, or 10.6x forward P/E. If you’re considering FTRE for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Watch:
Abercrombie and Fitch (ANF)
Market Cap: $3.61 billion
Founded as an outdoor and sporting brand, Abercrombie & Fitch (NYSE: ANF) evolved to become a specialty retailer that sells its own brand of fashionable clothing to young adults.
Why Are We Fans of ANF?
- Brick-and-mortar locations are witnessing elevated demand as their same-store sales growth averaged 14.8% over the past two years
- Collection of products is difficult to replicate at scale and results in a best-in-class gross margin of 63.6%
- Strong free cash flow margin of 10.7% enables it to reinvest or return capital consistently
At $75.86 per share, Abercrombie and Fitch trades at 7.4x 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
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum 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 Exlservice (+354% 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
