Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. That said, here is one Russell 2000 stock that could be the next big thing and two that may face some trouble.
Two Stocks to Sell:
Ocular Therapeutix (OCUL)
Market Cap: $1.58 billion
Pioneering a drug delivery platform that can eliminate the need for monthly eye injections, Ocular Therapeutix (NASDAQ: OCUL) develops sustained-release treatments for eye diseases using its proprietary ELUTYX bioresorbable hydrogel technology that gradually releases medication.
Why Are We Bearish on OCUL?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.7% annually over the last two years
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 7.5% annually while its revenue grew
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 371.3 percentage points
Ocular Therapeutix’s stock price of $7.23 implies a valuation ratio of 28.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than OCUL.
Excelerate Energy (EE)
Market Cap: $1.04 billion
Operating specialized vessels that can deliver up to 1.2 billion cubic feet of natural gas per day, Excelerate Energy (NYSE: EE) provides liquified natural gas regasification services using floating vessels that convert LNG back into natural gas.
Why Are We Hesitant About EE?
- Revenue base of $1.47 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Gross margin of 29.9% is below its competitors, leaving less money to invest in exploration and production
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Excelerate Energy is trading at $33.17 per share, or 17.9x forward P/E. If you’re considering EE for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Standex (SXI)
Market Cap: $3.31 billion
Holding over 500 patents globally, Standex (NYSE: SXI) is a manufacturer and distributor of industrial components for various sectors.
Why Is SXI on Our Radar?
- Market share has increased this cycle as its 11.2% annual revenue growth over the last two years was exceptional
- Offerings are difficult to replicate at scale and lead to a top-tier gross margin of 39.3%
- Disciplined cost controls and effective management resulted in a strong long-term operating margin of 15.5%, and it turbocharged its profits by achieving some fixed cost leverage
At $274.16 per share, Standex trades at 28.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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