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 are two Russell 2000 stocks that could be the next big thing and one that may face some trouble.
One Stock to Sell:
AMC Entertainment (AMC)
Market Cap: $2.36 billion
With a profile that was raised due to meme stock mania beginning in 2021, AMC Entertainment (NYSE:AMC) operates movie theaters primarily in the US and Europe.
Why Is AMC Risky?
- Sales trends were unexciting over the last two years as its 7.9% annual growth was below the typical consumer discretionary company
- Free cash flow margin is not anticipated to grow over the next year
AMC Entertainment is trading at $2.65 per share, or 13.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why AMC doesn’t pass our bar.
Two Stocks to Watch:
Northwest Pipe (NWPX)
Market Cap: $1.06 billion
Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe (NASDAQ:NWPX) is a manufacturer of pipeline systems for water infrastructure.
Why Will NWPX Outperform?
- Annual revenue growth of 14.4% over the past five years was outstanding, reflecting market share gains this cycle
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 41.6% exceeded its revenue gains over the last two years
- Free cash flow margin grew by 18.1 percentage points over the last five years, giving the company more chips to play with
Northwest Pipe’s stock price of $109.88 implies a valuation ratio of 21.3x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Grid Dynamics (GDYN)
Market Cap: $636.8 million
With engineering centers across the Americas, Europe, and India serving Fortune 1000 companies, Grid Dynamics (NASDAQ:GDYN) provides technology consulting, engineering, and analytics services to help large enterprises modernize their technology systems and business processes.
Why Are We Positive on GDYN?
- Annual revenue growth of 15.2% over the past two years was outstanding, reflecting market share gains this cycle
- Earnings per share grew by 14% annually over the last two years and easily exceeded the peer group average
- Historical investments are beginning to pay off as its returns on capital are growing
At $7.87 per share, Grid Dynamics trades at 16.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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