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. 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:
Mister Car Wash (MCW)
Market Cap: $2.30 billion
Formerly known as Hotshine Holdings, Mister Car Wash (NYSE: MCW) offers car washes across the United States through its conveyorized service.
Why Should You Dump MCW?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Cash-burning history makes us doubt the long-term viability of its business model
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $6.99 per share, Mister Car Wash trades at 14.7x forward P/E. If you’re considering MCW for your portfolio, see our FREE research report to learn more.
UFP Industries (UFPI)
Market Cap: $5.39 billion
Beginning as a lumber supplier in the 1950s, UFP Industries (NASDAQ: UFPI) is a holding company making building materials for the construction, retail, and industrial sectors.
Why Are We Out on UFPI?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.4% annually over the last two years
- Sales were less profitable over the last two years as its earnings per share fell by 21.3% annually, worse than its revenue declines
- Eroding returns on capital suggest its historical profit centers are aging
UFP Industries is trading at $94.90 per share, or 17.1x forward P/E. To fully understand why you should be careful with UFPI, check out our full research report (it’s free).
One Stock to Buy:
Nextpower (NXT)
Market Cap: $17.28 billion
With its technology playing a key role in the massive 1.2 gigawatt Noor Abu Dhabi solar farm project, Nextpower (NASDAQ: NXT) is a provider of solar tracker systems that help solar panels follow the sun.
Why Should You Buy NXT?
- Annual revenue growth of 25.7% over the past two years was outstanding, reflecting market share gains this cycle
- Free cash flow margin expanded by 22.5 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Returns on capital are climbing as management makes more lucrative bets
Nextpower’s stock price of $116.31 implies a valuation ratio of 24.5x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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