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.
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 that could be down big.
Two Small-Cap Stocks to Sell:
Banc of California (BANC)
Market Cap: $2.74 billion
Originally established in 1941 and now operating with a tech-forward approach that includes its SmartStreet platform for homeowner associations, Banc of California (NYSE: BANC) is a California-based bank holding company that provides banking services to small and middle-market businesses, entrepreneurs, and individuals.
Why Do We Avoid BANC?
- Annual net interest income growth of 2.4% over the last five years was below our standards for the banking sector
- Operational productivity has decreased over the last five years as its efficiency ratio worsened by 20.4 percentage points
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 3.9% annually over the last five years
At $17.19 per share, Banc of California trades at 0.8x forward P/B. Dive into our free research report to see why there are better opportunities than BANC.
Washington Trust Bancorp (WASH)
Market Cap: $626.4 million
Founded in 1800 and operating as Rhode Island's oldest community bank, Washington Trust Bancorp (NASDAQ: WASH) is a regional bank holding company offering commercial banking, mortgage lending, personal banking, and wealth management services.
Why Do We Steer Clear of WASH?
- 3.7% annual net interest income growth over the last five years was slower than its banking peers
- Weak unit economics are reflected in its net interest margin of 2.2%, one of the worst among bank companies
- Sales over the last five years were less profitable as its earnings per share fell by 7.8% annually while its revenue was flat
Washington Trust Bancorp’s stock price of $32.91 implies a valuation ratio of 1.1x forward P/B. To fully understand why you should be careful with WASH, check out our full research report (it’s free).
One Small-Cap Stock to Buy:
Duolingo (DUOL)
Market Cap: $4.47 billion
Founded by a Carnegie Mellon computer science professor and his Ph.D. student, Duolingo (NASDAQ: DUOL) is a mobile app helping people learn new languages.
Why Will DUOL Beat the Market?
- Monthly Active Users are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
- Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 199% outpaced its revenue gains
- Robust free cash flow margin of 35% gives it many options for capital deployment, and its recently improved profitability means it has even more resources to invest or distribute
Duolingo is trading at $95.76 per share, or 12.1x forward EV/EBITDA. 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
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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.
