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.
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 struggle to keep up.
Two Stocks to Sell:
Lincoln Educational (LINC)
Market Cap: $1.15 billion
Established in 1946, Lincoln Educational (NASDAQ: LINC) is a provider of specialized technical training in the United States, offering career-oriented programs to provide practical skills required in the workforce.
Why Is LINC Risky?
- Demand for its offerings was relatively low as its number of enrolled students has underwhelmed
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $36.01 per share, Lincoln Educational trades at 52.9x forward P/E. Dive into our free research report to see why there are better opportunities than LINC.
Hertz (HTZ)
Market Cap: $1.36 billion
Started with a dozen Model T Fords, Hertz (NASDAQ: HTZ) is a global car rental company providing vehicle rental services to leisure and business travelers.
Why Do We Steer Clear of HTZ?
- Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
- 18× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Hertz is trading at $4.38 per share, or 128.7x forward EV-to-EBITDA. To fully understand why you should be careful with HTZ, check out our full research report (it’s free).
One Stock to Buy:
EVERTEC (EVTC)
Market Cap: $1.81 billion
Operating one of Latin America's leading PIN debit networks called ATH, EVERTEC (NYSE: EVTC) is a payment transaction processor and financial technology provider that enables merchants and financial institutions across Latin America and the Caribbean to accept and process electronic payments.
Why Is EVTC a Top Pick?
- Impressive 15.8% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Earnings growth was above the peer group average over the last two years as its EPS compounded at 13.1% annually
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
EVERTEC’s stock price of $29.43 implies a valuation ratio of 7.4x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
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