1 Small-Cap Stock Worth Your Attention and 2 Facing Challenges

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. That said, here is one small-cap stock that could be the next big thing and two that could be down big.

Two Small-Cap Stocks to Sell:

Herbalife (HLF)

Market Cap: $1.00 billion

With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE:HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.

Why Is HLF Not Exciting?

1. Falling unit sales over the past two years suggest it might have to lower prices to stimulate growth
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.6%
3. Earnings per share decreased by more than its revenue over the last three years, partly because it diluted shareholders

At $9.70 per share, Herbalife trades at 4.6x forward P/E. To fully understand why you should be careful with HLF, check out our full research report (it’s free).

Compass Diversified (CODI)

Market Cap: $575.6 million

Operating with a permanent capital structure unlike traditional private equity funds, Compass Diversified (NYSE:CODI) is a private equity firm that acquires, manages, and grows middle-market businesses across various industries.

Why Are We Wary of CODI?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Earnings per share lagged its peers over the last two years as they only grew by 9.2% annually
3. Below-average return on equity indicates management struggled to find compelling investment opportunities

Compass Diversified’s stock price of $7.65 implies a valuation ratio of 3.2x forward P/E. Check out our free in-depth research report to learn more about why CODI doesn’t pass our bar.

One Small-Cap Stock to Buy:

NMI Holdings (NMIH)

Market Cap: $3.13 billion

Founded in the aftermath of the 2008 housing crisis to bring new capacity to the mortgage insurance market, NMI Holdings (NASDAQ:NMIH) provides mortgage insurance that protects lenders against losses when homebuyers default on their mortgage loans.

Why Is NMIH a Top Pick?

1. 9.8% annualized net premiums earned expansion over the last two years exceeded the sector average as its policies appealed to customers
2. Combined ratio improved by 14.4 percentage points over the last four years as it scaled
3. Balance sheet strength has increased this cycle as its 16% annual book value per share growth over the last five years was exceptional

NMI Holdings is trading at $39.84 per share, or 1.2x forward P/B. 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 April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Growth Stocks for this month. 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-micro-cap company Kadant (+351% 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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