The Russell 2000 (^RUT) is home to many small-cap stocks, offering investors the chance to uncover hidden gems before the broader market catches on. However, these companies often come with higher volatility and risk, as their smaller size makes them more vulnerable to economic downturns.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here is one Russell 2000 stock that could be a breakout winner and two best left off your watchlist.
Two Stocks to Sell:
Amplitude (AMPL)
Market Cap: $1.37 billion
Born from the realization that companies were flying blind when it came to understanding user behavior in their digital products, Amplitude (NASDAQ: AMPL) provides a digital analytics platform that helps businesses understand how people use their digital products to improve user experiences and drive revenue growth.
Why Should You Dump AMPL?
- Products, pricing, or go-to-market strategy may need some adjustments as its 9.9% average billings growth over the last year was weak
- Net revenue retention rate of 100% trails the industry benchmark of 110%+ and shows it has a tough time increasing customer spending
- Operating margin didn’t move over the last year, showing it couldn’t increase its efficiency
Amplitude’s stock price of $10.32 implies a valuation ratio of 3.8x forward price-to-sales. Check out our free in-depth research report to learn more about why AMPL doesn’t pass our bar.
Selective Insurance Group (SIGI)
Market Cap: $5.05 billion
Founded in 1926 during the early days of automobile insurance, Selective Insurance Group (NASDAQ: SIGI) is a property and casualty insurance company that sells commercial, personal, and excess and surplus lines insurance products through independent agents.
Why Do We Steer Clear of SIGI?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4% annually over the last two years
- Forecasted revenue decline of 55.9% for the upcoming 12 months implies demand will fall even further
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 11.7% annually
Selective Insurance Group is trading at $82.92 per share, or 1.5x forward P/B. Read our free research report to see why you should think twice about including SIGI in your portfolio.
One Stock to Buy:
Stride (LRN)
Market Cap: $6.23 billion
Formerly known as K12, Stride (NYSE: LRN) is an education technology company providing education solutions through digital platforms.
Why Are We Bullish on LRN?
- Rise in enrollments indicates high demand for its offerings
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 56.8% outpaced its revenue gains
- Free cash flow margin expanded by 8.6 percentage poinsts over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $143.97 per share, Stride trades at 16x 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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