The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
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 best left off your watchlist.
Two Stocks to Sell:
Carriage Services (CSV)
Market Cap: $599.5 million
Established in 1991, Carriage Services (NYSE: CSV) is a provider of funeral and cemetery services in the United States.
Why Are We Out on CSV?
- Muted 3.6% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 10.4% for the last two years
- Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate
Carriage Services’s stock price of $37.73 implies a valuation ratio of 10.4x forward P/E. If you’re considering CSV for your portfolio, see our FREE research report to learn more.
Karat Packaging (KRT)
Market Cap: $773.2 million
Founded as Lollicup, Karat Packaging (NASDAQ: KRT) distributes and manufactures environmentally-friendly disposable foodservice packaging solutions.
Why Is KRT Not Exciting?
- Earnings per share have contracted by 5.2% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
At $38.71 per share, Karat Packaging trades at 12.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why KRT doesn’t pass our bar.
One Stock to Watch:
Zeta Global (ZETA)
Market Cap: $4.83 billion
Powered by an AI engine that processes over one trillion consumer signals monthly, Zeta Global (NYSE: ZETA) operates a data-driven cloud platform that helps companies target, connect, and engage with consumers through personalized marketing across channels like email, social media, and video.
Why Are We Positive on ZETA?
- Billings growth has averaged 36.6% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- Market share will likely rise over the next 12 months as its expected revenue growth of 29.1% is robust
Zeta Global is trading at $19.27 per share, or 2.6x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
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