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 a breakout winner and two that may struggle to keep up.
Two Stocks to Sell:
Academy Sports (ASO)
Market Cap: $3.85 billion
Founded in 1938 as a tire shop before expanding into fishing equipment, Academy Sports & Outdoor (NASDAQ: ASO) sells a broad selection of sporting goods but is still known for its outdoor activity merchandise.
Why Does ASO Fall Short?
- Annual sales declines of 2.4% for the past three years show its products struggled to connect with the market
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Free cash flow margin dropped by 3.9 percentage points over the last year, implying the company became more capital intensive as competition picked up
Academy Sports’s stock price of $57.54 implies a valuation ratio of 9.4x forward P/E. Dive into our free research report to see why there are better opportunities than ASO.
G-III (GIII)
Market Cap: $1.25 billion
Founded as a small leather goods business, G-III (NASDAQ: GIII) is a fashion and apparel conglomerate with a diverse portfolio of brands.
Why Do We Think GIII Will Underperform?
- Muted 5.8% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
- Poor free cash flow margin of 10.9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Stagnant returns on capital show management has failed to improve the company’s business quality
G-III is trading at $29.50 per share, or 10.8x forward P/E. If you’re considering GIII for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Powell (POWL)
Market Cap: $6.26 billion
Originally a metal-working shop supporting local petrochemical facilities, Powell (NYSE: POWL) has grown from a small Houston manufacturer to a global provider of electrical systems.
Why Are We Bullish on POWL?
- Demand is greater than supply as the company’s 15.4% average backlog growth over the past two years shows it’s securing new contracts and accumulating more orders than it can fulfill
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 58.2% over the last two years outstripped its revenue performance
- Free cash flow margin grew by 22 percentage points over the last five years, giving the company more chips to play with
At $512.30 per share, Powell trades at 31.1x 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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