The Russell 2000 (^RUT) is home to many small-cap stocks, offering investors the chance to uncover hidden gems before the broader market catches on. However, these companies often come with higher volatility and risk, as their smaller size makes them more vulnerable to economic downturns.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here is one Russell 2000 stock that could deliver strong gains and two best left off your watchlist.
Two Stocks to Sell:
America's Car-Mart (CRMT)
Market Cap: $113.4 million
With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ: CRMT) sells used cars to budget-conscious consumers.
Why Should You Sell CRMT?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Issuance of new shares over the last three years caused its earnings per share to fall by 31.2% annually
America's Car-Mart is trading at $13.67 per share, or 21.5x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than CRMT.
Tecnoglass (TGLS)
Market Cap: $1.99 billion
The first-ever Colombian company to trade on the NASDAQ, Tecnoglass (NYSE: TGLS) is a manufacturer of architectural glass, windows, and aluminum products.
Why Do We Think Twice About TGLS?
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 5.2% annually while its revenue grew
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.7 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
At $44.46 per share, Tecnoglass trades at 15.3x forward P/E. To fully understand why you should be careful with TGLS, check out our full research report (it’s free).
One Stock to Buy:
Stride (LRN)
Market Cap: $4.29 billion
Formerly known as K12, Stride (NYSE: LRN) is an education technology company providing education solutions through digital platforms.
Why Is LRN a Good Business?
- Annual revenue growth of 14.6% over the last five years was superb and indicates its market share increased during this cycle
- Earnings growth has trumped its peers over the last two years as its EPS has compounded at 45% annually
- Improving returns on capital reflect management’s ability to monetize investments
Stride’s stock price of $102.04 implies a valuation ratio of 12x 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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