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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here is one Russell 2000 stock that could deliver strong gains and two that may face some trouble.
Two Stocks to Sell:
ABM (ABM)
Market Cap: $2.28 billion
With roots dating back to 1909 as a window washing company, ABM Industries (NYSE: ABM) provides integrated facility management, infrastructure, and mobility solutions across various sectors including commercial, manufacturing, education, and aviation.
Why Are We Wary of ABM?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings per share have dipped by 2.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Low free cash flow margin of 1.9% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
ABM is trading at $38.89 per share, or 9.9x forward P/E. Dive into our free research report to see why there are better opportunities than ABM.
PAR Technology (PAR)
Market Cap: $606.7 million
Originally founded in 1968 as a defense contractor for the U.S. government, PAR Technology (NYSE: PAR) provides cloud-based software, payment processing, and hardware solutions that help restaurants manage everything from point-of-sale to customer loyalty programs.
Why Do We Think Twice About PAR?
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Push for growth has led to negative returns on capital, signaling value destruction
PAR Technology’s stock price of $15.01 implies a valuation ratio of 20x forward P/E. Read our free research report to see why you should think twice about including PAR in your portfolio.
One Stock to Watch:
MYR Group (MYRG)
Market Cap: $6.86 billion
Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ: MYRG) is a specialty contractor in the electrical construction industry.
Why Is MYRG on Our Radar?
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 32.6% exceeded its revenue gains over the last two years
- Free cash flow margin jumped by 4.5 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
At $440.97 per share, MYR Group trades at 38.6x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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