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. That said, here are two Russell 2000 stocks that could deliver strong gains and one that may face some trouble.
One Stock to Sell:
MarineMax (HZO)
Market Cap: $545.9 million
Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE: HZO) sells boats, yachts, and other marine products.
Why Are We Wary of HZO?
- Store closures and poor same-store sales reveal weak demand and a push toward operational efficiency
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
MarineMax’s stock price of $25.42 implies a valuation ratio of 9.7x forward P/E. Check out our free in-depth research report to learn more about why HZO doesn’t pass our bar.
Two Stocks to Watch:
Photronics (PLAB)
Market Cap: $1.10 billion
Sporting a global footprint of facilities, Photronics (NASDAQ: PLAB) is a manufacturer of photomasks, templates used to transfer patterns onto semiconductor wafers.
Why Does PLAB Stand Out?
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Share repurchases have increased shareholder returns as its annual earnings per share growth of 31.7% exceeded its revenue gains over the last five years
- Industry-leading 25.4% return on capital demonstrates management’s skill in finding high-return investments, and its returns are climbing as it finds even more attractive growth opportunities
At $18.30 per share, Photronics trades at 8.8x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Live Oak Bancshares (LOB)
Market Cap: $1.28 billion
Founded during the 2008 financial crisis with a vision to reimagine small business banking through technology, Live Oak Bancshares (NYSE: LOB) is a bank holding company that specializes in providing online banking services and SBA-guaranteed loans to small businesses across targeted industries nationwide.
Why Should You Buy LOB?
- Annual net interest income growth of 14.5% over the last four years was superb and indicates its market share increased during this cycle
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 45% over the last five years outstripped its revenue performance
- Annual tangible book value per share growth of 11.3% over the past five years was outstanding, reflecting strong capital accumulation this cycle
Live Oak Bancshares is trading at $27.97 per share, or 1.2x forward P/B. Is now a good time to buy? Find out in our full research report, it’s free.
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