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 are two Russell 2000 stocks that could be the next big thing and one best left off your watchlist.
One Stock to Sell:
Sally Beauty (SBH)
Market Cap: $1.30 billion
Catering to both everyday consumers as well as salon professionals, Sally Beauty (NYSE: SBH) is a retailer that sells salon-quality beauty products such as makeup and haircare products.
Why Is SBH Risky?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Modest revenue base of $3.69 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Earnings per share have contracted by 2.7% annually over the last six years, a headwind for returns as stock prices often echo long-term EPS performance
Sally Beauty’s stock price of $13.35 implies a valuation ratio of 7x forward P/E. Dive into our free research report to see why there are better opportunities than SBH.
Two Stocks to Watch:
Mirion (MIR)
Market Cap: $4.23 billion
With its technology protecting workers in over 130 countries and equipment used in 80% of cancer centers worldwide, Mirion Technologies (NYSE: MIR) provides radiation detection, measurement, and monitoring solutions for medical, nuclear energy, defense, and scientific research applications.
Why Are We Positive On MIR?
- Solid 8.2% annual revenue growth over the last four years indicates its offering’s solve complex business issues
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 28.2% over the last two years outstripped its revenue performance
- Free cash flow margin increased by 3.7 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Mirion is trading at $20.21 per share, or 39.3x forward EV-to-EBITDA. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
BrightSpring Health Services (BTSG)
Market Cap: $4.91 billion
Founded in 1974, BrightSpring Health Services (NASDAQ: BTSG) offers home health care, hospice, neuro-rehabilitation, and pharmacy services.
Why Are We Fans of BTSG?
- Annual revenue growth of 21.3% over the last two years was superb and indicates its market share increased during this cycle
- Projected revenue growth of 10.6% for the next 12 months suggests its momentum from the last two years will persist
- Earnings growth has trumped its peers over the last four years as its EPS has compounded at 26.3% annually
At $23.96 per share, BrightSpring Health Services trades at 24.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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