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.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. Keeping that in mind, here are two Russell 2000 stocks that could deliver strong gains and one that may face some trouble.
One Stock to Sell:
Bloomin' Brands (BLMN)
Market Cap: $592.1 million
Owner of the iconic Australian-themed Outback Steakhouse, Bloomin’ Brands (NASDAQ:BLMN) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.
Why Is BLMN Risky?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Sales are projected to tank by 2.2% over the next 12 months as demand evaporates further
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $7.02 per share, Bloomin' Brands trades at 5.4x forward P/E. Check out our free in-depth research report to learn more about why BLMN doesn’t pass our bar.
Two Stocks to Watch:
Limbach (LMB)
Market Cap: $1.39 billion
Established in 1901, Limbach (NASDAQ: LMB) provides integrated building systems solutions, including mechanical, electrical, and plumbing services.
Why Are We Fans of LMB?
- Operating margin expansion of 6.2 percentage points over the last five years shows the company optimized its expenses
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 45.1% over the last two years outstripped its revenue performance
- Free cash flow margin jumped by 5.9 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Limbach’s stock price of $119.70 implies a valuation ratio of 28x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Magnite (MGNI)
Market Cap: $3.21 billion
Born from the 2020 merger of Rubicon Project and Telaria, Magnite (NASDAQ:MGNI) operates the world's largest independent sell-side advertising platform that automates the buying and selling of digital advertising inventory across all channels and formats.
Why Should You Buy MGNI?
- Market share has increased this cycle as its 33% annual revenue growth over the last five years was exceptional
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 22.8% annually, topping its revenue gains
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its rising cash conversion increases its margin of safety
Magnite is trading at $22.61 per share, or 24.5x forward P/E. Is now the right 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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