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. That said, 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:
Universal Display (OLED)
Market Cap: $7.19 billion
Serving major consumer electronics manufacturers, Universal Display (NASDAQ:OLED) is a provider of organic light emitting diode (OLED) technologies used in display and lighting applications.
Why Are We Wary of OLED?
- Annual revenue growth of 4.3% over the last two years was below our standards for the semiconductor sector
- Estimated sales growth of 4.1% for the next 12 months is soft and implies weaker demand
- 5.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Universal Display’s stock price of $151.22 implies a valuation ratio of 32.7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than OLED.
Ready Capital (RC)
Market Cap: $717.8 million
Operating as one of only 17 non-bank Small Business Lending Companies with preferred lender status from the SBA, Ready Capital (NYSE:RC) is a multi-strategy real estate finance company that originates, acquires, and services commercial real estate loans, small business loans, and other real estate investments.
Why Do We Pass on RC?
- Forecasted net interest income decline of 10.2% for the upcoming 12 months implies demand will fall off a cliff
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 6.5% annually over the last five years
Ready Capital is trading at $4.25 per share, or 0.4x forward P/B. To fully understand why you should be careful with RC, check out our full research report (it’s free).
One Small-Cap Stock to Buy:
Palomar Holdings (PLMR)
Market Cap: $3.73 billion
Founded in 2013 to fill gaps in catastrophe insurance markets, Palomar Holdings (NASDAQ:PLMR) is a specialty insurance provider that offers property and casualty insurance products in underserved markets, with a focus on earthquake coverage.
Why Will PLMR Outperform?
- Market share has increased this cycle as its 32.3% annual net premiums earned growth over the last two years was exceptional
- Impressive 35% annual book value per share growth over the last two years indicates it’s building equity value this cycle
- Capital strength will likely rise over the next 12 months as its expected book value per share growth of 24.6% is robust
At $139.56 per share, Palomar Holdings trades at 4.1x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
Trump’s April 2024 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out 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 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 Comfort Systems (+782% 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
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