1 Small-Cap Stock to Own for Decades and 2 We Avoid

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 amplify your portfolio’s returns and two that could be down big.

Two Small-Cap Stocks to Sell:

Enpro (NPO)

Market Cap: $5.24 billion

Holding a Guinness World Record for creating the world's largest gasket, Enpro (NYSE:NPO) designs, manufactures, and sells products used for machinery in various industries.

Why Is NPO Not Exciting?

1. Muted 1.3% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
2. Below-average returns on capital indicate management struggled to find compelling investment opportunities

Enpro is trading at $246.59 per share, or 28.9x forward P/E. Check out our free in-depth research report to learn more about why NPO doesn’t pass our bar.

Essent Group (ESNT)

Market Cap: $5.59 billion

Serving as a crucial bridge between homebuyers and the American dream of homeownership, Essent Group (NYSE:ESNT) provides private mortgage insurance and title services that enable lenders to offer home loans with down payments of less than 20%.

Why Does ESNT Fall Short?

1. 2.7% annualized net premiums earned growth over the last five years lagged behind its insurance peers
2. Efficiency has decreased over the last two years as its pre-tax profit margin fell by 9 percentage points
3. Annual earnings per share growth of 3% underperformed its revenue over the last two years, showing its incremental sales were less profitable

At $58.99 per share, Essent Group trades at 0.9x forward P/B. Read our free research report to see why you should think twice about including ESNT in your portfolio.

One Small-Cap Stock to Buy:

Lyft (LYFT)

Market Cap: $5.27 billion

Founded by Logan Green and John Zimmer as a long-distance intercity carpooling company Zimride, Lyft (NASDAQ: LYFT) operates a ridesharing network in the US and Canada.

Why Is LYFT a Top Pick?

1. Has the opportunity to boost monetization through new features and premium offerings as its active riders have grown by 12.2% annually over the last two years
2. Incremental sales significantly boosted profitability as its annual earnings per share growth of 64.1% over the last three years outstripped its revenue performance
3. Free cash flow margin grew by 26.3 percentage points over the last few years, giving the company more chips to play with

Lyft’s stock price of $13.50 implies a valuation ratio of 7x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.

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