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.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. Keeping that in mind, here is one Russell 2000 stock that could be a breakout winner and two that may face some trouble.
Two Stocks to Sell:
Titan International (TWI)
Market Cap: $493.7 million
Acquiring Goodyear’s farm tire business in 2005, Titan (NYSE: TWI) is a manufacturer and supplier of wheels, tires, and undercarriages used in off-highway vehicles such as construction vehicles.
Why Do We Think TWI Will Underperform?
- Muted 2.5% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Diminishing returns on capital suggest its earlier profit pools are drying up
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $7.67 per share, Titan International trades at 473.9x forward P/E. Read our free research report to see why you should think twice about including TWI in your portfolio.
EVgo (EVGO)
Market Cap: $279.3 million
Created through a settlement between NRG Energy and the California Public Utilities Commission, EVgo (NASDAQ: EVGO) is a provider of electric vehicle charging solutions, operating fast charging stations across the United States.
Why Do We Think Twice About EVGO?
- Poor expense management has led to operating margin losses
- Cash-burning history makes us doubt the long-term viability of its business model
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
EVgo’s stock price of $2.00 implies a valuation ratio of 13x forward EV-to-EBITDA. To fully understand why you should be careful with EVGO, check out our full research report (it’s free).
One Stock to Buy:
NerdWallet (NRDS)
Market Cap: $554 million
Born from founder Tim Chen's frustration with the lack of transparent credit card information when helping his sister in 2009, NerdWallet (NASDAQ: NRDS) is a digital platform that provides financial guidance to help consumers and small businesses make smarter decisions about credit cards, loans, insurance, and other financial products.
Why Do We Love NRDS?
- Market share has increased this cycle as its 28.2% annual revenue growth over the last five years was exceptional
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 186% exceeded its revenue gains over the last two years
NerdWallet is trading at $8.50 per share, or 1.6x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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