The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
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 is one Russell 2000 stock that could be the next big thing and two that may face some trouble.
Two Stocks to Sell:
QuidelOrtho (QDEL)
Market Cap: $1.03 billion
Born from the 2022 merger of Quidel and Ortho Clinical Diagnostics, QuidelOrtho (NASDAQ: QDEL) develops and manufactures diagnostic testing solutions for healthcare providers, from rapid point-of-care tests to complex laboratory instruments and systems.
Why Are We Bearish on QDEL?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
QuidelOrtho’s stock price of $15.05 implies a valuation ratio of 18.6x forward P/E. Check out our free in-depth research report to learn more about why QDEL doesn’t pass our bar.
Ibotta (IBTA)
Market Cap: $897.6 million
Originally launched as a way to make grocery shopping more rewarding for budget-conscious consumers, Ibotta (NYSE: IBTA) is a mobile shopping app that allows consumers to earn cash back on everyday purchases by completing tasks and submitting receipts.
Why Are We Cautious About IBTA?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.3% annually over the last two years
- Revenue base of $343.2 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Earnings per share have dipped by 22.3% annually over the past two years, which is concerning because stock prices follow EPS over the long term
Ibotta is trading at $38.76 per share, or 23.8x forward P/E. Dive into our free research report to see why there are better opportunities than IBTA.
One Stock to Buy:
DXP (DXPE)
Market Cap: $2.92 billion
Founded during the emergence of Big Oil in Texas, DXP (NASDAQ: DXPE) provides pumps, valves, and other industrial components.
Why Do We Love DXPE?
- Impressive 16.8% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Share buybacks catapulted its annual earnings per share growth to 22.5%, which outperformed its revenue gains over the last two years
- Free cash flow margin grew by 4 percentage points over the last five years, giving the company more chips to play with
At $188.15 per share, DXP trades at 26x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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