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1 Small-Cap Stock with Solid Fundamentals and 2 We Ignore
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.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here is one small-cap stock that could amplify your portfolio’s returns and two best left ignored.
Two Small-Cap Stocks to Sell:
MasterCraft (MCFT)
Market Cap: $330.3 million
Started by a waterskiing instructor, MasterCraft (NASDAQ:MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Do We Think MCFT Will Underperform?
- Demand for its offerings was relatively low as its number of boats sold has underwhelmed
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 11.1% for the last two years
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $20.25 per share, MasterCraft trades at 15.3x forward P/E. To fully understand why you should be careful with MCFT, check out our full research report (it’s free for active Edge members).
TFS Financial (TFSL)
Market Cap: $3.86 billion
Tracing its roots back to 1938 during the Great Depression era when savings and loans were vital to homeownership, TFS Financial (NASDAQ:TFSL) is a savings and loan holding company that provides mortgage lending, deposit services, and other retail banking products primarily in Ohio and Florida.
Why Should You Sell TFSL?
- 3.9% 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 1.7%, one of the worst among bank companies
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 2% annually
TFS Financial’s stock price of $13.87 implies a valuation ratio of 2x forward P/B. If you’re considering TFSL for your portfolio, see our FREE research report to learn more.
One Small-Cap Stock to Watch:
Genpact (G)
Market Cap: $8.16 billion
Originally spun off from General Electric in 2005 to provide business process services, Genpact (NYSE:G) is a global professional services firm that helps businesses transform their operations through digital technology, AI, and data analytics solutions.
Why Are We Positive On G?
- G is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
- Industry-leading 18.2% return on capital demonstrates management’s skill in finding high-return investments, and its rising returns show it’s making even more lucrative bets
- Returns on capital are climbing as management makes more lucrative bets
Genpact is trading at $47.37 per share, or 12.2x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in 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 244% over the last five years (as of June 30, 2025).
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.