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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are two Russell 2000 stocks that could deliver strong gains and one that may face some trouble.
One Stock to Sell:
Helios (HLIO)
Market Cap: $2.18 billion
Founded on the principle of treating others as one wants to be treated, Helios (NYSE: HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.
Why Do We Pass on HLIO?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 9.3 percentage points
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Helios is trading at $65.86 per share, or 23.5x forward P/E. Check out our free in-depth research report to learn more about why HLIO doesn’t pass our bar.
Two Stocks to Watch:
Karat Packaging (KRT)
Market Cap: $565.2 million
Founded as Lollicup, Karat Packaging (NASDAQ: KRT) distributes and manufactures environmentally-friendly disposable foodservice packaging solutions.
Why Are We Positive On KRT?
- Solid 9.6% annual revenue growth over the last five years indicates its offering’s solve complex business issues
- Free cash flow margin increased by 7.3 percentage points over the last five years, giving the company more capital to invest or return to shareholders
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures, and its returns are climbing as it finds even more attractive growth opportunities
Karat Packaging’s stock price of $28.37 implies a valuation ratio of 13.9x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Warby Parker (WRBY)
Market Cap: $2.59 billion
Founded in 2010, Warby Parker (NYSE: WRBY) designs, manufactures, and sells eyewear, including prescription glasses, sunglasses, and contact lenses, through its e-commerce platform and physical retail locations.
Why Do We Love WRBY?
- Rapidly increasing store base reflects a desire to sell in new markets and scale quickly
- Market share will likely rise over the next 12 months as its expected revenue growth of 12.7% is robust
- Earnings growth has trumped its peers over the last three years as its EPS has compounded at 134% annually
At $22.77 per share, Warby Parker trades at 43x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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