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.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. That said, here is one Russell 2000 stock that could deliver strong gains and two that may face some trouble.
Two Stocks to Sell:
Integer Holdings (ITGR)
Market Cap: $4.22 billion
With its name reflecting the mathematical term for "whole" or "complete," Integer Holdings (NYSE: ITGR) is a medical device outsource manufacturer that produces components and systems for cardiac, vascular, neurological, and other medical applications.
Why Is ITGR Not Exciting?
- Muted 6.5% annual revenue growth over the last five years shows its demand lagged behind its healthcare peers
- Revenue base of $1.75 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Free cash flow margin dropped by 7.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Integer Holdings’s stock price of $121 implies a valuation ratio of 19.2x forward P/E. Dive into our free research report to see why there are better opportunities than ITGR.
CSG (CSGS)
Market Cap: $1.82 billion
Powering billions of critical customer interactions annually, CSG Systems (NASDAQ: CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.
Why Do We Pass on CSGS?
- 3.4% annual revenue growth over the last two years was slower than its business services peers
- Projected sales growth of 2.5% for the next 12 months suggests sluggish demand
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
CSG is trading at $66.04 per share, or 13.8x forward P/E. Read our free research report to see why you should think twice about including CSGS in your portfolio.
One Stock to Buy:
Nextracker (NXT)
Market Cap: $9.80 billion
With its technology playing a key role in the massive 1.2 gigawatt Noor Abu Dhabi solar farm project, Nextracker (NASDAQ: NXT) is a provider of solar tracker systems that help solar panels follow the sun.
Why Are We Bullish on NXT?
- Average backlog growth of 46.5% over the past two years shows it has a steady sales pipeline that will drive future orders
- Free cash flow margin grew by 13.6 percentage points over the last five years, giving the company more chips to play with
- Improving returns on capital reflect management’s ability to monetize investments
At $66.63 per share, Nextracker trades at 17x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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