Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. Keeping that in mind, here are two Russell 2000 stocks that could be the next breakout winners and one that may struggle to keep up.
One Stock to Sell:
Smith & Wesson (SWBI)
Market Cap: $362 million
With a history dating back to 1852, Smith & Wesson (NASDAQ: SWBI) is a firearms manufacturer known for its handguns and rifles.
Why Are We Out on SWBI?
- Products and services have few die-hard fans as sales have declined by 2.2% annually over the last five years
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Negative free cash flow raises questions about the return timeline for its investments
At $8.19 per share, Smith & Wesson trades at 18.2x forward P/E. If you’re considering SWBI for your portfolio, see our FREE research report to learn more.
Two Stocks to Watch:
Granite Construction (GVA)
Market Cap: $4.72 billion
Having played a role in the construction of the Hoover Dam, Granite Construction (NYSE: GVA) is a provider of infrastructure solutions for roads, bridges, and other projects.
Why Are We Fans of GVA?
- Market share has increased this cycle as its 11.9% annual revenue growth over the last two years was exceptional
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 42% annually, topping its revenue gains
- Rising returns on capital show the company is starting to reap the benefits of its past investments
Granite Construction’s stock price of $107.75 implies a valuation ratio of 17.5x forward EV-to-EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
WisdomTree (WT)
Market Cap: $1.95 billion
Originally founded as a financial media company before pivoting to ETF management in 2006, WisdomTree (NYSE: WT) is a financial services company that creates and manages exchange-traded funds (ETFs) and other investment products for individual and institutional investors.
Why Are We Backing WT?
- Impressive 18.6% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 62.9% annually, topping its revenue gains
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
WisdomTree is trading at $13.61 per share, or 17.1x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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