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 deliver strong gains and two best left off your watchlist.
Two Stocks to Sell:
Concrete Pumping (BBCP)
Market Cap: $561.4 million
Going public via SPAC in 2018, Concrete Pumping (NASDAQ: BBCP) is a provider of concrete pumping and waste management services in the United States and the United Kingdom.
Why Are We Cautious About BBCP?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.1% annually over the last two years
- Earnings per share have contracted by 33.1% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Concrete Pumping’s stock price of $11.35 implies a valuation ratio of 50.7x forward P/E. To fully understand why you should be careful with BBCP, check out our full research report (it’s free).
Trupanion (TRUP)
Market Cap: $1.02 billion
Born from a vision to help pet owners avoid economic euthanasia when faced with expensive veterinary bills, Trupanion (NASDAQ: TRUP) provides medical insurance for cats and dogs through data-driven, vertically-integrated products priced specifically for each pet's unique characteristics.
Why Are We Wary of TRUP?
- Annual book value per share growth of 1.5% over the last five years was below our standards for the insurance sector
- Estimated book value per share growth of 3.4% for the next 12 months implies profitability will slow from its two-year trend
- Negative return on equity shows that some of its growth strategies have backfired
At $23.93 per share, Trupanion trades at 2.5x forward P/B. If you’re considering TRUP for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Distribution Solutions (DSGR)
Market Cap: $1.28 billion
Founded in 1952, Distribution Solutions (NASDAQ: DSGR) provides supply chain solutions and distributes industrial, safety, and maintenance products to various industries.
Why Does DSGR Stand Out?
- Impressive 38.1% annual revenue growth over the last four years indicates it’s winning market share this cycle
- Incremental sales over the last two years have been more profitable as its earnings per share increased by 14% annually, topping its revenue gains
- Free cash flow margin expanded by 5.1 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
Distribution Solutions is trading at $27.31 per share, or 18.5x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
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