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. 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:
Kura Sushi (KRUS)
Market Cap: $590 million
Known for its conveyor belt that transports dishes to diners, Kura Sushi (NASDAQ: KRUS) is a chain of sushi restaurants serving traditional Japanese fare with a touch of modernity and technology.
Why Does KRUS Give Us Pause?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Negative free cash flow raises questions about the return timeline for its investments
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Kura Sushi’s stock price of $47.55 implies a valuation ratio of 324.5x forward P/E. To fully understand why you should be careful with KRUS, check out our full research report (it’s free).
Simply Good Foods (SMPL)
Market Cap: $956.3 million
Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ: SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.
Why Do We Steer Clear of SMPL?
- 5.2% annual revenue growth over the last three years was slower than its consumer staples peers
- Estimated sales decline of 7.9% for the next 12 months implies a challenging demand environment
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 31.9 percentage points
At $10.91 per share, Simply Good Foods trades at 6.6x forward P/E. Check out our free in-depth research report to learn more about why SMPL doesn’t pass our bar.
One Stock to Watch:
StepStone Group (STEP)
Market Cap: $3.80 billion
Operating as both an advisor and asset manager with over $100 billion in assets under management, StepStone Group (NASDAQ: STEP) is an investment firm that provides clients with access to private market investments across private equity, real estate, private debt, and infrastructure.
Why Is STEP on Our Radar?
- Market share has increased this cycle as its 37.3% annual revenue growth over the last two years was exceptional
- Earnings growth has massively outpaced its peers over the last two years as its EPS has compounded at 24.7% annually
StepStone Group is trading at $46.14 per share, or 17.4x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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