2 Russell 2000 Stocks Worth Investigating and 1 That Underwhelm

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.

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. Keeping that in mind, here are two Russell 2000 stocks that could be the next big thing and one that may struggle to keep up.

One Stock to Sell:

Beyond Meat (BYND)

Market Cap: $218 million

A pioneer at the forefront of the plant-based protein revolution, Beyond Meat (NASDAQ:BYND) is a food company specializing in alternatives to traditional meat products.

Why Do We Pass on BYND?

1. Shrinking unit sales over the past two years imply it may need to invest in product improvements to get back on track
2. Capital intensity has ramped up over the last year as its free cash flow margin decreased by 18.5 percentage points
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Beyond Meat is trading at $3.23 per share, or 0.8x forward price-to-sales. Check out our free in-depth research report to learn more about why BYND doesn’t pass our bar.

Two Stocks to Watch:

Target Hospitality (TH)

Market Cap: $720.4 million

Building mini-communities at places such as oil drilling sites, Target Hospitality (NASDAQ:TH) is a provider of specialty workforce lodging accommodations and services.

Why Could TH Be a Winner?

1. Disciplined cost controls and effective management resulted in a strong two-year operating margin of 25.9%
2. TH is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
3. Rising returns on capital show management is finding more attractive investment opportunities

At $7.28 per share, Target Hospitality trades at 21.9x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.

NMI Holdings (NMIH)

Market Cap: $2.86 billion

Founded in the aftermath of the 2008 housing crisis to bring new capacity to the mortgage insurance market, NMI Holdings (NASDAQ:NMIH) provides mortgage insurance that protects lenders against losses when homebuyers default on their mortgage loans.

Why Is NMIH a Top Pick?

1. Net premiums earned expanded by 9.8% annually over the last two years, outperforming the sector average and highlighting the appeal of its insurance products
2. Combined ratio improvement of 14.4 percentage points over the last four years demonstrates its ability to scale effectively
3. Impressive 16% annual book value per share growth over the last five years indicates it’s building equity value this cycle

NMI Holdings’s stock price of $36.82 implies a valuation ratio of 1.1x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.

High-Quality Stocks for All Market Conditions

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