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.
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 be a breakout winner and two that may struggle to keep up.
Two Stocks to Sell:
eHealth (EHTH)
Market Cap: $119.8 million
Aiming to address a high-stakes and often confusing decision, eHealth (NASDAQ: EHTH) guides consumers through health insurance enrollment and related topics.
Why Is EHTH Not Exciting?
- Value proposition isn’t resonating strongly as its estimated membership averaged 2.2% drops over the last two years
- Projected sales decline of 2.5% for the next 12 months points to a tough demand environment ahead
- Negative free cash flow raises questions about the return timeline for its investments
At $3.85 per share, eHealth trades at 2.9x forward EV/EBITDA. Read our free research report to see why you should think twice about including EHTH in your portfolio.
Matthews (MATW)
Market Cap: $790.7 million
Originally a death care company, Matthews International (NASDAQ: MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.
Why Do We Steer Clear of MATW?
- Annual revenue declines of 6.5% over the last two years indicate problems with its market positioning
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 14.8% annually while its revenue grew
- Cash burn makes us question whether it can achieve sustainable long-term growth
Matthews’s stock price of $25.97 implies a valuation ratio of 16.8x forward EV-to-EBITDA. If you’re considering MATW for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Shake Shack (SHAK)
Market Cap: $4.07 billion
Started as a hot dog cart in New York City's Madison Square Park, Shake Shack (NYSE: SHAK) is a fast-food restaurant known for its burgers and milkshakes.
Why Do We Watch SHAK?
- Aggressive strategy of rolling out new restaurants to gobble up whitespace is prudent given its same-store sales growth
- Customers are lining up to eat at its restaurants as the company’s same-store sales growth averaged 2.7% over the past two years
- Free cash flow margin increased by 2.1 percentage points over the last year, giving the company more capital to invest or return to shareholders
Shake Shack is trading at $101.71 per share, or 65.6x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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