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. Keeping that in mind, here are two small-cap stocks that could amplify your portfolio’s returns and one that may have trouble.
One Small-Cap Stock to Sell:
Richardson Electronics (RELL)
Market Cap: $250.4 million
Founded in 1947, Richardson Electronics (NASDAQ:RELL) is a distributor of power grid and microwave tubes as well as consumables related to those products.
Why Is RELL Not Exciting?
- Annual revenue growth of 5.3% over the last five years was below our standards for the industrials sector
- Low free cash flow margin of -0.9% declined over the last five years as its investments ramped, giving it little breathing room
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Richardson Electronics is trading at $16.63 per share, or 34.5x forward P/E. Read our free research report to see why you should think twice about including RELL in your portfolio.
Two Small-Cap Stocks to Watch:
TaskUs (TASK)
Market Cap: $700.5 million
Starting as a virtual assistant service in 2008 before evolving into a global digital services provider, TaskUs (NASDAQ:TASK) provides outsourced digital services including customer experience management, content moderation, and AI data services to innovative technology companies.
Why Could TASK Be a Winner?
- Impressive 15.1% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Free cash flow margin expanded by 17.6 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Returns on capital are climbing as management makes more lucrative bets
TaskUs’s stock price of $7.65 implies a valuation ratio of 5.6x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
CNX Resources (CNX)
Market Cap: $5.43 billion
Tracing back to operations that began in 1860, CNX Resources (NYSE:CNX) drills for and produces natural gas from underground shale formations in Pennsylvania, Ohio, and West Virginia.
Why Do We Love CNX?
- Annual revenue growth of 3.3% over the last ten years beat the sector average and underscores the unique value of its offerings
- Attractive asset base leads to wonderful unit economics and a top-tier gross margin of 68.2%
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
At $36.68 per share, CNX Resources trades at 11.5x forward P/E. 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
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
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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 Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.