Avoid These Two Small-Cap Stocks: Herc Holdings and Columbia Banking System, but Focus on Globalstar Instead

Small-cap stocks offer a unique opportunity for investors to act before the masses catch on, but they also come with increased downside risk due to their lack of scale and staying power compared to larger competitors. To help investors navigate this landscape, we've identified three small-cap stocks to consider: two to sell and one to watch. First, Herc Holdings (HRI) with a market cap of $3.25 billion. Despite its former parentage with Hertz Corporation, HRI's flat earnings per share over the last two years underperformed the sector average, and its free cash flow margin has shrunk by 18 percentage points over the last five years. At $114.76 per share, HRI trades at 8.8x forward P/E. Our research report provides a better opportunity than HRI. Second, Columbia Banking System (COLB) with a market cap of $4.75 billion. The bank operates Umpqua Bank and provides commercial, consumer, and wealth management services across eight western states. However, its estimated net interest income growth of 2.3% for the next 12 months implies demand will slow from its four-year trend, and its annual earnings per share growth of 2.9% underperformed its revenue over the last five years. Additionally, loan losses and capital returns have eroded its tangible book value this cycle as its tangible book value per share declined by 1.2% annually over the last five years. At $22.66 per share, COLB trades at 0.9x forward P/B. Our full research report explains why you should be cautious with COLB. On the other hand, Globalstar (GSAT) with a market cap of $2.78 billion is a small-cap stock to watch. Known for powering the emergency SOS feature in newer Apple iPhones, GSAT operates a network of low-earth orbit satellites that provide voice and data communications services in remote areas where traditional cellular networks don't reach. Its annual revenue growth of 20.7% over the last two years was superb and indicates its market share increased during this cycle. Its annual earnings per share growth of 33.7% outpaced its revenue gains, and its robust free cash flow margin of 27.9% gives it many options for capital deployment. GSAT is trading at $21.86 per share, or 26.8x forward EV-to-EBITDA. Our in-depth research report provides more insights on GSAT's potential as a long-term winner. In addition to these three stocks, we've curated a list of our Top 5 Growth Stocks for this month that have generated a market-beating return of 183% over the last five years (as of March 31st 2025). These stocks include familiar names like 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). Take advantage of Mr. Market by checking out our Top 5 Growth Stocks for this month for free with StockStory today.