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. 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:
Jamf (JAMF)
Market Cap: $1.21 billion
With its name playfully derived from "Just Another Management Framework," Jamf (NASDAQ: JAMF) provides software that helps organizations deploy, manage, and secure Apple devices across their workforce while maintaining a seamless user experience.
Why Is JAMF Not Exciting?
- Sales trends were unexciting over the last three years as its 16.3% annual growth was below the typical software company
- Persistent operating margin losses suggest the business manages its expenses poorly
- Low free cash flow margin of 9.7% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $9.08 per share, Jamf trades at 1.6x forward price-to-sales. Read our free research report to see why you should think twice about including JAMF in your portfolio.
Stitch Fix (SFIX)
Market Cap: $691.6 million
One of the original subscription box companies, Stitch Fix (NASDAQ: SFIX) is an online personal styling and fashion service that curates personalized clothing selections for customers.
Why Do We Avoid SFIX?
- Performance surrounding its active clients has lagged its peers
- Historical operating margin losses point to an inefficient cost structure
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Stitch Fix is trading at $5.15 per share, or 14.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SFIX doesn’t pass our bar.
One Stock to Watch:
Upwork (UPWK)
Market Cap: $2.18 billion
Formed through the 2013 merger of Elance and oDesk, Upwork (NASDAQ: UPWK) is an online platform where businesses and independent professionals connect to get work done.
Why Are We Fans of UPWK?
- 8.9% annual increases in its average revenue per customer over the last two years show its platform is resonating with power users
- Additional sales over the last three years increased its profitability as the 166% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin expanded by 31.3 percentage points over the last few years, providing additional flexibility for investments and share buybacks/dividends
Upwork’s stock price of $16.58 implies a valuation ratio of 11.3x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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