The Russell 2000 (^RUT) is home to many small-cap stocks, offering investors the chance to uncover hidden gems before the broader market catches on. However, these companies often come with higher volatility and risk, as their smaller size makes them more vulnerable to economic downturns.
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 struggle to keep up.
Two Stocks to Sell:
Herbalife (HLF)
Market Cap: $1.72 billion
With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE: HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.
Why Are We Cautious About HLF?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4.3%
- Issuance of new shares over the last three years caused its earnings per share to fall by 14.4% annually, even worse than its revenue declines
At $16.55 per share, Herbalife trades at 6.3x forward P/E. Dive into our free research report to see why there are better opportunities than HLF.
Jackson Financial (JXN)
Market Cap: $8.15 billion
Spun off from British insurer Prudential plc in 2021 after more than 60 years as its U.S. subsidiary, Jackson Financial (NYSE: JXN) offers annuity products and retirement solutions that help Americans grow and protect their retirement savings and income.
Why Are We Wary of JXN?
- Net premiums earned expanded by 1.9% annually over the last two years, falling below our expectations for the insurance sector
- Day-to-day expenses have swelled relative to revenue over the last two years as its pre-tax profit margin fell by 32.8 percentage points
- Earnings per share have contracted by 2.3% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
Jackson Financial is trading at $115.77 per share, or 0.7x forward P/B. If you’re considering JXN for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Hims & Hers Health (HIMS)
Market Cap: $6.19 billion
Originally launched with a focus on stigmatized conditions like hair loss and sexual health, Hims & Hers Health (NYSE: HIMS) operates a consumer-focused telehealth platform that connects patients with healthcare providers for prescriptions and wellness products.
Why Will HIMS Outperform?
- Customer growth averaged 29.5% over the past two years, showing its ability to "land" new contracts and potentially "expand" them later - a powerful one-two punch for sales
- Free cash flow margin expanded by 16.9 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Rising returns on capital show the company is starting to reap the benefits of its past investments
Hims & Hers Health’s stock price of $27.20 implies a valuation ratio of 24.3x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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