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 be the next 100 bagger and two that may have trouble.
Two Small-Cap Stocks to Sell:
First Merchants (FRME)
Market Cap: $2.60 billion
Dating back to 1893 when it first opened its doors in Indiana, First Merchants (NASDAQ: FRME) is a Midwest regional bank providing commercial, consumer, and wealth management services through branches in Indiana, Ohio, Michigan, and Illinois.
Why Does FRME Give Us Pause?
- Sales trends were unexciting over the last two years as its 3.7% annual growth was below the typical banking company
- Muted 7.5% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4% annually
First Merchants’s stock price of $41.20 implies a valuation ratio of 0.9x forward P/B. Read our free research report to see why you should think twice about including FRME in your portfolio.
Core Laboratories (CLB)
Market Cap: $610.8 million
With roots dating back to the first commercial oil boom, Core Laboratories (NYSE: CLB) analyzes rock and fluid samples from oil and gas reservoirs to help energy companies optimize production and recovery.
Why Do We Pass on CLB?
- 3.4% annual revenue growth over the last five years was slower than its energy upstream and integrated energy peers
- Revenue base of $524.7 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Gross margin of 20.4% reflects its high production costs and unfavorable asset base
Core Laboratories is trading at $11.76 per share, or 1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than CLB.
One Small-Cap Stock to Watch:
Taboola (TBLA)
Market Cap: $1.29 billion
Often appearing as those "You May Also Like" or "Recommended For You" boxes at the bottom of news articles, Taboola (NASDAQ: TBLA) operates a digital platform that recommends personalized content to users across publisher websites, helping both publishers monetize their sites and advertisers reach target audiences.
Why Do We Like TBLA?
- Market share has increased this cycle as its 13.1% annual revenue growth over the last two years was exceptional
- Free cash flow margin expanded by 8.8 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Returns on capital are increasing as management’s prior bets are starting to bear fruit
At $4.52 per share, Taboola trades at 0.7x trailing 12-month price-to-sales. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today.
