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 the next big thing and two best left off your watchlist.
Two Stocks to Sell:
Appian (APPN)
Market Cap: $2.72 billion
Powering billions of transactions daily since its founding in 1999, Appian (NASDAQ:APPN) provides a low-code platform that helps businesses automate complex processes and operationalize artificial intelligence without extensive programming knowledge.
Why Does APPN Give Us Pause?
- Annual revenue growth of 14.6% over the last two years was below our standards for the software sector
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Projected 6 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
Appian’s stock price of $36.68 implies a valuation ratio of 3.6x forward price-to-sales. If you’re considering APPN for your portfolio, see our FREE research report to learn more.
Titan International (TWI)
Market Cap: $502 million
Acquiring Goodyear’s farm tire business in 2005, Titan (NSYE:TWI) is a manufacturer and supplier of wheels, tires, and undercarriages used in off-highway vehicles such as construction vehicles.
Why Do We Steer Clear of TWI?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 3.7% annually over the last two years
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 73.4% annually, worse than its revenue
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $7.86 per share, Titan International trades at 68.1x forward P/E. Dive into our free research report to see why there are better opportunities than TWI.
One Stock to Buy:
WisdomTree (WT)
Market Cap: $1.70 billion
Originally founded as a financial media company before pivoting to ETF management in 2006, WisdomTree (NYSE:WT) is a financial services company that creates and manages exchange-traded funds (ETFs) and other investment products for individual and institutional investors.
Why Do We Love WT?
- Annual revenue growth of 17.4% over the last two years was superb and indicates its market share increased during this cycle
- Additional sales over the last two years increased its profitability as the 57.1% annual growth in its earnings per share outpaced its revenue
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
WisdomTree is trading at $12.60 per share, or 13.1x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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