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.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. That said, here is one Russell 2000 stock that could be a breakout winner and two that may struggle to keep up.
Two Stocks to Sell:
BrightView (BV)
Market Cap: $1.19 billion
An official field consultant for Major League Baseball, BrightView (NYSE: BV) offers landscaping design, development, and maintenance.
Why Do We Think BV Will Underperform?
- Sales tumbled by 1.7% annually over the last two years, showing market trends are working against its favor during this cycle
- Earnings per share have contracted by 2.5% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Free cash flow margin shrank by 5.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $12.53 per share, BrightView trades at 15.2x forward P/E. To fully understand why you should be careful with BV, check out our full research report (it’s free for active Edge members).
AdaptHealth (AHCO)
Market Cap: $1.21 billion
With a network of approximately 680 locations serving patients across all 50 states, AdaptHealth (NASDAQ: AHCO) provides home medical equipment, supplies, and related services to patients with chronic conditions like sleep apnea, diabetes, and respiratory disorders.
Why Do We Think Twice About AHCO?
- Annual revenue growth of 2.7% over the last two years was below our standards for the healthcare sector
- Earnings per share fell by 1.1% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
AdaptHealth’s stock price of $9.01 implies a valuation ratio of 9.2x forward P/E. Dive into our free research report to see why there are better opportunities than AHCO.
One Stock to Watch:
Braze (BRZE)
Market Cap: $3.02 billion
With its technology powering interactions with 6.2 billion monthly active users across the digital landscape, Braze (NASDAQ: BRZE) provides a platform that helps brands build and maintain direct relationships with their customers through personalized, cross-channel messaging and engagement.
Why Are We Positive On BRZE?
- Billings growth has averaged 24.4% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- Platform has decent utility and becomes more valuable over time, as seen in its 110% net revenue retention rate
- Projected revenue growth of 19.2% for the next 12 months suggests its momentum from the last two years will persist
Braze is trading at $27.15 per share, or 3.7x forward price-to-sales. Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.
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