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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here is one small-cap stock that could amplify your portfolio’s returns and two best left ignored.
Two Small-Cap Stocks to Sell:
Kadant (KAI)
Market Cap: $3.43 billion
Headquartered in Massachusetts, Kadant (NYSE: KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.
Why Do We Think Twice About KAI?
- Muted 3.8% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Earnings per share fell by 3.6% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- Free cash flow margin dropped by 3.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $290.97 per share, Kadant trades at 29.5x forward P/E. If you’re considering KAI for your portfolio, see our FREE research report to learn more.
Employers Holdings (EIG)
Market Cap: $889.9 million
With roots in Nevada and a strong concentration in California where 45% of its premiums are generated, Employers Holdings (NYSE: EIG) is a specialty provider of workers' compensation insurance focused on small and select businesses engaged in low-to-medium hazard industries across the United States.
Why Do We Think EIG Will Underperform?
- Growth in insurance policies was lackluster over the last two years as its 3.3% annual growth underperformed the typical financial institution
- Day-to-day expenses have swelled relative to revenue over the last two years as its combined ratio increased by 10.9 percentage points
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 8.3% annually
Employers Holdings’s stock price of $39.59 implies a valuation ratio of 0.8x forward P/B. Check out our free in-depth research report to learn more about why EIG doesn’t pass our bar.
One Small-Cap Stock to Watch:
Arlo Technologies (ARLO)
Market Cap: $1.53 billion
Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE: ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.
Why Does ARLO Stand Out?
- Operating margin improvement of 13.5 percentage points over the last five years demonstrates its ability to scale efficiently
- Additional sales over the last two years increased its profitability as the 120% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin jumped by 16.5 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Arlo Technologies is trading at $14.37 per share, or 19.3x forward P/E. 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
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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