1 Small-Cap Stock to Own for Decades and 2 to Be Wary Of

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 may have trouble.

Two Small-Cap Stocks to Sell:

Flywire (FLYW)

Market Cap: $1.07 billion

Originally created to process international tuition payments for universities, Flywire (NASDAQ:FLYW) is a cross border payments processor and software platform focusing on complex, high-value transactions like education, healthcare and B2B payments.

Why Are We Wary of FLYW?

1. Gross margin of 63.7% reflects its relatively high servicing costs
2. Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
3. Rapid expansion strategy came at the expense of operating profitability

At $8.57 per share, Flywire trades at 1.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than FLYW.

Allegro MicroSystems (ALGM)

Market Cap: $3.49 billion

The result of a spinoff from Sanken in Japan, Allegro MicroSystems (NASDAQ:ALGM) is a designer of power management chips and distance sensors used in electric vehicles and data centers.

Why Are We Out on ALGM?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 7.6% annually over the last two years
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 19.8% annually while its revenue grew
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.4 percentage points

Allegro MicroSystems is trading at $18.84 per share, or 37.7x forward price-to-earnings. If you’re considering ALGM for your portfolio, see our FREE research report to learn more.

One Small-Cap Stock to Buy:

AAON (AAON)

Market Cap: $5.94 billion

Backed by two million square feet of lab testing space, AAON (NASDAQ:AAON) makes heating, ventilation, and air conditioning equipment for different types of buildings.

Why Will AAON Beat the Market?

1. Market share has increased this cycle as its 16.2% annual revenue growth over the last two years was exceptional
2. Earnings per share have massively outperformed its peers over the last two years, increasing by 27.7% annually
3. Stellar returns on capital showcase management’s ability to surface highly profitable business ventures

AAON’s stock price of $71.47 implies a valuation ratio of 24.9x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market 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 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.