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 be a breakout winner and two that may face some trouble.
Two Stocks to Sell:
Cushman & Wakefield (CWK)
Market Cap: $3.01 billion
With expertise in the commercial real estate sector, Cushman & Wakefield (NYSE: CWK) is a global Chicago-based real estate firm offering a comprehensive range of services to clients.
Why Do We Think CWK Will Underperform?
- Annual sales growth of 6% over the last five years lagged behind its consumer discretionary peers as its large revenue base made it difficult to generate incremental demand
- Low free cash flow margin of 1.7% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Stagnant returns on capital show management has failed to improve the company’s business quality
Cushman & Wakefield’s stock price of $12.83 implies a valuation ratio of 8.5x forward P/E. If you’re considering CWK for your portfolio, see our FREE research report to learn more.
Perella Weinberg (PWP)
Market Cap: $1.26 billion
Founded in 2006 by veteran investment bankers Joseph Perella and Peter Weinberg during a wave of boutique advisory firm launches, Perella Weinberg Partners (NASDAQ: PWP) is a global independent advisory firm that provides strategic and financial advice to corporations, financial sponsors, and government institutions.
Why Do We Pass on PWP?
- Muted 2.9% annual revenue growth over the last five years shows its demand lagged behind its financials peers
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
- Negative return on equity shows management lost money while trying to expand the business
Perella Weinberg is trading at $17.71 per share, or 1.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PWP.
One Stock to Watch:
1st Source (SRCE)
Market Cap: $1.77 billion
Tracing its roots back to 1863 during the Civil War era, 1st Source Corporation (NASDAQ: SRCE) is a regional bank holding company that provides commercial, consumer, specialty finance, and wealth management services across Indiana, Michigan, and Florida.
Why Are We Positive On SRCE?
- Net interest margin expanded by 66.4 basis points (100 basis points = 1 percentage point) over the last two years, providing additional flexibility for investments
- Performance over the past five years was boosted by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Impressive 9.4% annual tangible book value per share growth over the last five years indicates it’s building equity value this cycle
At $73.45 per share, 1st Source trades at 1.3x forward P/B. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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