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 is one Russell 2000 stock that could deliver strong gains and two that may face some trouble.
Two Stocks to Sell:
Altice (ATUS)
Market Cap: $1.02 billion
Based in Long Island City, Altice USA (NYSE: ATUS) is a telecommunications company offering cable, internet, telephone, and television services across the United States.
Why Do We Steer Clear of ATUS?
- Number of broadband subscribers has disappointed over the past two years, indicating weak demand for its offerings
- Sales were less profitable over the last five years as its earnings per share fell by 31.1% annually, worse than its revenue declines
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Altice is trading at $2.17 per share, or 0.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including ATUS in your portfolio.
Accel Entertainment (ACEL)
Market Cap: $887.6 million
Established in Illinois, Accel Entertainment (NYSE: ACEL) is a provider of electronic gaming machines and interactive amusement terminals to bars and entertainment venues.
Why Are We Wary of ACEL?
- Sluggish trends in its video gaming terminals sold suggest customers aren’t adopting its solutions as quickly as the company hoped
- Estimated sales growth of 6.4% for the next 12 months is soft and implies weaker demand
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3.8% for the last two years
Accel Entertainment’s stock price of $10.53 implies a valuation ratio of 10.6x forward P/E. To fully understand why you should be careful with ACEL, check out our full research report (it’s free for active Edge members).
One Stock to Buy:
WEBTOON (WBTN)
Market Cap: $2.33 billion
Pioneering a vertical-scrolling format optimized for mobile devices, WEBTOON Entertainment (NASDAQ: WBTN) operates a global platform where creators publish serialized web-comics and web-novels that users can read in bite-sized episodes.
Why Are We Backing WBTN?
- 7.5% annual revenue growth over the last two years surpassed the sector average as its services resonated with customers
- Estimated revenue growth of 13% for the next 12 months implies demand will accelerate from its two-year trend
- Additional sales over the last two years increased its profitability as the 79.7% annual growth in its earnings per share outpaced its revenue
At $17.71 per share, WEBTOON trades at 2,136.4x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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