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 a breakout winner and two that may face some trouble.
Two Stocks to Sell:
Vishay Intertechnology (VSH)
Market Cap: $2.06 billion
Named after the founder's ancestral village in present-day Lithuania, Vishay Intertechnology (NYSE: VSH) manufactures simple chips and electronic components that are building blocks of virtually all types of electronic devices.
Why Do We Pass on VSH?
- Sales tumbled by 9.1% annually over the last two years, showing market trends are working against its favor during this cycle
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 22.3%
- 14.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Vishay Intertechnology is trading at $15.16 per share, or 82.1x forward P/E. Dive into our free research report to see why there are better opportunities than VSH.
Matrix Service (MTRX)
Market Cap: $359.3 million
Founded in Oklahoma, Matrix Service (NASDAQ: MTRX) provides engineering, fabrication, construction, and maintenance services primarily to the energy and industrial markets.
Why Should You Dump MTRX?
- Annual sales declines of 6.9% for the past five years show its products and services struggled to connect with the market during this cycle
- High input costs result in an inferior gross margin of 3.9% that must be offset through higher volumes
- Issuance of new shares over the last five years caused its earnings per share to fall by 34.8% annually, even worse than its revenue declines
At $12.80 per share, Matrix Service trades at 20.5x forward P/E. If you’re considering MTRX for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Arlo Technologies (ARLO)
Market Cap: $1.79 billion
Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE: ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.
Why Do We Like ARLO?
- Operating margin improvement of 13.1 percentage points over the last five years demonstrates its ability to scale efficiently
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 434% annually, topping its revenue gains
- Free cash flow margin grew by 17.4 percentage points over the last five years, giving the company more chips to play with
Arlo Technologies’s stock price of $17.14 implies a valuation ratio of 25.5x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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