Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
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 is one Russell 2000 stock that could be the next big thing and two that may struggle to keep up.
Two Stocks to Sell:
RXO (RXO)
Market Cap: $3.52 billion
With access to millions of trucks, RXO (NYSE:RXO) offers full-truckload, less-than-truckload, and last-mile deliveries.
Why Do We Steer Clear of RXO?
- Declining unit sales over the past two years suggest it might have to lower prices to accelerate growth
- 5.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
RXO’s stock price of $21.36 implies a valuation ratio of 62x forward P/E. If you’re considering RXO for your portfolio, see our FREE research report to learn more.
Triumph Financial (TFIN)
Market Cap: $1.46 billion
Originally focused on traditional banking before pivoting to serve the transportation sector, Triumph Financial (NYSE:TFIN) provides specialized financial services to the trucking industry, including payments processing, factoring, banking, and data intelligence solutions.
Why Do We Avoid TFIN?
- Muted 1.8% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 22.2% annually while its revenue grew
- Tier one capital ratio of 9.9% raises concerns about the firm’s ability to maintain adequate liquidity
Triumph Financial is trading at $61.18 per share, or 1.5x forward P/B. To fully understand why you should be careful with TFIN, check out our full research report (it’s free).
One Stock to Buy:
Astronics (ATRO)
Market Cap: $2.94 billion
Integrating power outlets into many Boeing aircraft, Astronics (NASDAQ:ATRO) is a provider of technologies and services to the global aerospace, defense, and electronics industries.
Why Do We Love ATRO?
- Annual revenue growth of 16.5% over the past five years was outstanding, reflecting market share gains this cycle
- Free cash flow margin grew by 10.3 percentage points over the last five years, giving the company more chips to play with
- Rising returns on capital show the company is starting to reap the benefits of its past investments
At $67.50 per share, Astronics trades at 23x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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