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.
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:
Monro (MNRO)
Market Cap: $439.8 million
Started as a single location in Rochester, New York, Monro (NASDAQ: MNRO) provides common auto services such as brake repairs, tire replacements, and oil changes.
Why Should You Sell MNRO?
- Store closures and disappointing same-store sales suggest demand is sluggish and it’s rightsizing its operations
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- ROIC of 4.8% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
At $14.38 per share, Monro trades at 23.2x forward P/E. To fully understand why you should be careful with MNRO, check out our full research report (it’s free for active Edge members).
Under Armour (UAA)
Market Cap: $1.94 billion
Founded in 1996 by a former University of Maryland football player, Under Armour (NYSE: UAA) is an apparel brand specializing in sportswear designed to improve athletic performance.
Why Should You Dump UAA?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Under Armour is trading at $4.61 per share, or 73x forward P/E. Check out our free in-depth research report to learn more about why UAA doesn’t pass our bar.
One Small-Cap Stock to Buy:
1st Source (SRCE)
Market Cap: $1.45 billion
Tracing its roots back to 1863 during the Civil War era, 1st Source Corporation (NASDAQ: SRCE) is a regional bank holding company that provides commercial, consumer, specialty finance, and wealth management services across Indiana, Michigan, and Florida.
Why Will SRCE Outperform?
- Net interest margin increased by 48.7 basis points (100 basis points = 1 percentage point) over the last two years, giving the firm more capital to invest or return to shareholders
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 11.3% annually, topping its revenue gains
- Annual tangible book value per share growth of 8.7% over the past five years was outstanding, reflecting strong capital accumulation this cycle
1st Source’s stock price of $59.44 implies a valuation ratio of 1.1x forward P/B. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
Stocks We Like Even More
Trump’s April 2025 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 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
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