Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.
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. Keeping that in mind, here is one small-cap stock that could amplify your portfolio’s returns and two best left ignored.
Two Small-Cap Stocks to Sell:
Portillo's (PTLO)
Market Cap: $351.7 million
Begun as a Chicago hot dog stand in 1963, Portillo’s (NASDAQ:PTLO) is a casual restaurant chain that serves Chicago-style hot dogs and beef sandwiches as well as fries and shakes.
Why Is PTLO Risky?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Portillo’s stock price of $4.84 implies a valuation ratio of 23.6x forward P/E. Check out our free in-depth research report to learn more about why PTLO doesn’t pass our bar.
Horace Mann Educators (HMN)
Market Cap: $2.07 billion
Founded in 1945 and named after the 19th-century education reformer known as the "father of American public education," Horace Mann Educators (NYSE:HMN) is an insurance company that specializes in providing auto, property, life, and retirement products tailored for educators and other public service employees.
Why Do We Pass on HMN?
- Net premiums earned expanded by 6.4% annually over the last five years, falling below our expectations for the insurance sector
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 3.3% annually over the last five years
- Below-average return on equity indicates management struggled to find compelling investment opportunities
At $51.02 per share, Horace Mann Educators trades at 1.3x forward P/B. To fully understand why you should be careful with HMN, check out our full research report (it’s free).
One Small-Cap Stock to Buy:
HNI (HNI)
Market Cap: $3.60 billion
With roots dating back to 1944 and a significant acquisition of Kimball International in 2023, HNI (NYSE:HNI) manufactures and sells office furniture systems, seating, and storage solutions, as well as residential fireplaces and heating products.
Why Should You Buy HNI?
- Impressive 29.9% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Exciting sales outlook for the upcoming 12 months calls for 40.2% growth, an acceleration from its two-year trend
- Earnings growth has comfortably beaten the peer group average over the last five years as its EPS has compounded at 10.7% annually
HNI is trading at $49.92 per share, or 11.1x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
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.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
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.