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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here is one Russell 2000 stock that could be a breakout winner and two that may face some trouble.
Two Stocks to Sell:
Noble Corporation (NE)
Market Cap: $7.73 billion
With origins dating back over a century to 1921, Noble Corporation (NYSE: NE) operates drilling rigs that oil and gas companies charter to drill wells in deep ocean waters and shallow seas.
Why Does NE Give Us Pause?
- Gross margin of 40.7% reflects its high production costs and unfavorable asset base
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Noble Corporation is trading at $48.39 per share, or 43.5x forward P/E. Dive into our free research report to see why there are better opportunities than NE.
HighPeak Energy (HPK)
Market Cap: $713.9 million
Operating in the oil-rich northeastern corner of the Midland Basin where Howard and Borden counties meet, HighPeak Energy (NASDAQ: HPK) explores for, develops, and produces crude oil, natural gas liquids, and natural gas.
Why Does HPK Fall Short?
- Revenue base of $863.4 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 12.3 percentage points
- Negative free cash flow raises questions about the return timeline for its investments
HighPeak Energy’s stock price of $5.60 implies a valuation ratio of 3.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why HPK doesn’t pass our bar.
One Stock to Watch:
Workiva (WK)
Market Cap: $3.27 billion
Nicknamed "the Excel killer" by some finance professionals for its ability to eliminate spreadsheet chaos, Workiva (NYSE: WK) provides a cloud-based platform that enables organizations to streamline financial reporting, ESG, and compliance processes with connected data and automation.
Why Does WK Stand Out?
- Customers view its software as mission-critical to their operations as its ARR has averaged 21.7% growth over the last year
- Prominent and differentiated software results in a top-tier gross margin of 78.5%
- Free cash flow margin is forecasted to grow by 3.2 percentage points in the coming year, potentially giving the company more chips to play with
At $57.55 per share, Workiva trades at 3.2x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
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