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.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here is one small-cap stock that could be the next 100 bagger and two that could be down big.
Two Small-Cap Stocks to Sell:
Western Union (WU)
Market Cap: $2.23 billion
With a history dating back to 1851 when it began as a telegraph company, Western Union (NYSE:WU) is a global money transfer service that enables consumers and businesses to send funds across borders and currencies, typically within minutes.
Why Do We Think WU Will Underperform?
- Annual sales declines of 3.2% for the past five years show its products and services struggled to connect with the market during this cycle
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 5.3% annually, worse than its revenue
Western Union’s stock price of $7.17 implies a valuation ratio of 5x forward P/E. If you’re considering WU for your portfolio, see our FREE research report to learn more.
WaFd Bank (WAFD)
Market Cap: $2.77 billion
Founded in 1917 and rebranded from Washington Federal in 2023, WaFd (NASDAQ:WAFD) is a bank holding company that provides lending, deposit services, and insurance through its Washington Federal Bank subsidiary across eight western states.
Why Do We Steer Clear of WAFD?
- Net interest income trends were unexciting over the last five years as its 7.4% annual growth was below the typical banking firm
- Inferior net interest margin of 2.7% means it must compensate for lower profitability through increased loan originations
- Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable
WaFd Bank is trading at $37.47 per share, or 1x forward P/B. To fully understand why you should be careful with WAFD, check out our full research report (it’s free).
One Small-Cap Stock to Watch:
First Advantage (FA)
Market Cap: $4.14 billion
Processing over 200 million screens annually across more than 200 countries and territories, First Advantage (NASDAQ:FA) provides employment background screening, identity verification, and compliance solutions to help companies manage hiring risks.
Why Are We Positive on FA?
- Impressive 48.2% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Economies of scale give it more fixed cost leverage than its smaller competitors
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
At $23.76 per share, First Advantage trades at 15.1x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.