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 Industrials Stocks to Sell:
Advanced Energy (AEIS)
Market Cap: $8.18 billion
Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ: AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.
Why Should You Sell AEIS?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Efficiency has decreased over the last five years as its operating margin fell by 3.1 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
Advanced Energy’s stock price of $218 implies a valuation ratio of 30.6x forward P/E. Dive into our free research report to see why there are better opportunities than AEIS.
Douglas Dynamics (PLOW)
Market Cap: $708.7 million
Once manufacturing snowplows designed for the iconic jeep vehicle precursor, Douglas Dynamics (NYSE: PLOW) offers snow and ice equipment for the roads and sidewalks.
Why Are We Cautious About PLOW?
- 1.8% annual revenue growth over the last two years was slower than its industrials peers
- Free cash flow margin dropped by 2.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Diminishing returns on capital suggest its earlier profit pools are drying up
Douglas Dynamics is trading at $30.76 per share, or 13x forward P/E. Read our free research report to see why you should think twice about including PLOW in your portfolio.
One Industrials Stock to Watch:
Dycom (DY)
Market Cap: $8.29 billion
Working alongside some of the most popular mobile carriers in the world, Dycom (NYSE: DY) builds and maintains telecommunications infrastructure.
Why Does DY Stand Out?
- Impressive 11.1% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
At $286.41 per share, Dycom trades at 27.1x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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