1 Russell 2000 Stock to Keep an Eye On and 2 That Underwhelm

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 best left off your watchlist.

Two Stocks to Sell:

El Pollo Loco (LOCO)

Market Cap: $334.3 million

With a name that translates into ‘The Crazy Chicken’, El Pollo Loco (NASDAQ:LOCO) is a fast food chain known for its citrus-marinated, fire-grilled chicken recipe that hails from the coastal town of Sinaloa, Mexico.

Why Do We Steer Clear of LOCO?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Modest revenue base of $480.8 million gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Estimated sales growth of 3.7% for the next 12 months is soft and implies weaker demand

El Pollo Loco’s stock price of $11.17 implies a valuation ratio of 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than LOCO.

Ducommun (DCO)

Market Cap: $1.61 billion

California’s oldest company, Ducommun (NYSE:DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.

Why Do We Think Twice About DCO?

1. Backlog growth averaged a weak 4.8% over the past two years, suggesting it may need to tweak its product roadmap or go-to-market strategy
2. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 12.2 percentage points
3. Underwhelming 2.8% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up

At $107.68 per share, Ducommun trades at 25.2x forward P/E. To fully understand why you should be careful with DCO, check out our full research report (it’s free).

One Stock to Watch:

Viasat (VSAT)

Market Cap: $5.52 billion

Operating a fleet of 23 satellites that orbit the Earth and beam connectivity from space, Viasat (NASDAQ:VSAT) provides satellite-based communications networks and services for airlines, maritime vessels, governments, businesses, and residential customers worldwide.

Why Does VSAT Catch Our Eye?

1. Market share has increased this cycle as its 17.4% annual revenue growth over the last two years was exceptional
2. Revenue base of $4.58 billion gives it economies of scale and some distribution advantages
3. Stagnant returns on capital show management has failed to improve the company’s business quality

Viasat is trading at $40.55 per share, or 76.4x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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