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 are three small-cap stocks to swipe left on and some alternatives you should look into instead.
Valley National Bank (VLY)
Market Cap: $6.13 billion
Tracing its roots back to 1927 during the economic boom before the Great Depression, Valley National Bancorp (NASDAQGS:VLY) operates Valley National Bank, providing commercial, consumer, and wealth management banking services across several states.
Why Are We Wary of VLY?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Inferior net interest margin of 2.9% means it must compensate for lower profitability through increased loan originations
- Earnings per share fell by 17% annually over the last two years while its revenue was flat, showing each sale was less profitable
At $10.78 per share, Valley National Bank trades at 0.8x forward P/B. If you’re considering VLY for your portfolio, see our FREE research report to learn more.
BankUnited (BKU)
Market Cap: $3.04 billion
Born from the ashes of a failed Florida thrift during the 2009 financial crisis, BankUnited (NYSE: BKU) is a regional bank that provides commercial lending, deposit services, and treasury solutions to businesses and consumers primarily in Florida and the New York metropolitan area.
Why Are We Hesitant About BKU?
- Net interest income trends were unexciting over the last five years as its 5.5% annual growth was below the typical banking firm
- Net interest margin of 2.8% is well below other banks, signaling its loans aren’t very profitable
- Efficiency ratio is expected to worsen by 17.5 percentage points over the next year
BankUnited is trading at $39.96 per share, or 1x forward P/B. To fully understand why you should be careful with BKU, check out our full research report (it’s free for active Edge members).
Prospect Capital (PSEC)
Market Cap: $1.18 billion
Operating as one of the largest publicly traded business development companies in the United States, Prospect Capital (NASDAQ: PSEC) provides debt and equity financing to middle-market companies across various industries.
Why Should You Sell PSEC?
- Annual sales declines of 8.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 66.3% annually while its revenue grew
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 4.3% annually over the last five years
Prospect Capital’s stock price of $2.54 implies a valuation ratio of 1.6x trailing 12-month price-to-sales. Dive into our free research report to see why there are better opportunities than PSEC.
High-Quality Stocks for All Market Conditions
Fresh US-China trade tensions just tanked stocks—but strong bank earnings are fueling a sharp rebound. Don’t miss the bounce.
Don’t let fear keep you from great opportunities and take a look at Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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