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.
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 a breakout winner and two that may face some trouble.
Two Stocks to Sell:
Plexus (PLXS)
Market Cap: $4.00 billion
With over 20,000 team members across 26 global facilities, Plexus (NASDAQ: PLXS) designs, manufactures, and services complex electronic products for companies in aerospace/defense, healthcare, and industrial sectors.
Why Does PLXS Give Us Pause?
- Sales tumbled by 2.1% annually over the last two years, showing market trends are working against its favor during this cycle
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.7% for the last five years
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Plexus’s stock price of $149.40 implies a valuation ratio of 20.9x forward P/E. If you’re considering PLXS for your portfolio, see our FREE research report to learn more.
Matrix Service (MTRX)
Market Cap: $332.2 million
Founded in Oklahoma, Matrix Service (NASDAQ: MTRX) provides engineering, fabrication, construction, and maintenance services primarily to the energy and industrial markets.
Why Does MTRX Fall Short?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.9% annually over the last five years
- High input costs result in an inferior gross margin of 3.8% that must be offset through higher volumes
- Earnings per share decreased by more than its revenue over the last five years, partly because it diluted shareholders
Matrix Service is trading at $11.81 per share, or 23.2x forward P/E. Check out our free in-depth research report to learn more about why MTRX doesn’t pass our bar.
One Stock to Watch:
Ibotta (IBTA)
Market Cap: $583.5 million
Originally launched as a way to make grocery shopping more rewarding for budget-conscious consumers, Ibotta (NYSE: IBTA) is a mobile shopping app that allows consumers to earn cash back on everyday purchases by completing tasks and submitting receipts.
Why Are We Fans of IBTA?
- Rapid growth in total redemptions demonstrates strong market adoption
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 292% outpaced its revenue gains
- Free cash flow margin jumped by 48.6 percentage points over the last four years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $21.95 per share, Ibotta trades at 18x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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