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 face some trouble.
Two Stocks to Sell:
Tenable (TENB)
Market Cap: $3.94 billion
Founded in 2002 by three cybersecurity veterans, Tenable (NASDAQ: TENB) provides software as a service that helps companies understand where they are exposed to cyber security risk and how to reduce it.
Why Does TENB Fall Short?
- Sales trends were unexciting over the last three years as its 16.9% annual growth was below the typical software company
- Estimated sales growth of 7.5% for the next 12 months implies demand will slow from its three-year trend
- Suboptimal cost structure is highlighted by its history of operating margin losses
At $32.29 per share, Tenable trades at 3.9x forward price-to-sales. If you’re considering TENB for your portfolio, see our FREE research report to learn more.
Dynex Capital (DX)
Market Cap: $1.31 billion
Operating in the financial markets since 1988 with a focus on capital preservation during economic turbulence, Dynex Capital (NYSE: DX) is a mortgage real estate investment trust that invests primarily in government-backed residential mortgage securities to generate income for shareholders.
Why Do We Think Twice About DX?
- Sales tumbled by 45.9% annually over the last four years, showing market trends are working against its favor during this cycle
- Earnings per share have dipped by 47% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 5.1% annually over the last five years
Dynex Capital’s stock price of $12.25 implies a valuation ratio of 1x forward P/B. Check out our free in-depth research report to learn more about why DX doesn’t pass our bar.
One Stock to Buy:
Inter Parfums (IPAR)
Market Cap: $4.25 billion
With licenses to produce colognes and perfumes under brands such as Kate Spade, Van Cleef & Arpels, and Abercrombie & Fitch, Inter Parfums (NASDAQ: IPAR) manufactures and distributes fragrances worldwide.
Why Are We Backing IPAR?
- Market share has increased over the last three years as its 16.3% annual revenue growth was exceptional
- Products command premium prices and lead to a top-tier gross margin of 55.6%
- Free cash flow margin increased by 11.3 percentage points over the last year, giving the company more capital to invest or return to shareholders
Inter Parfums is trading at $132.25 per share, or 23.8x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
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