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. Keeping that in mind, here is one Russell 2000 stock that could be the next big thing and two that may face some trouble.
Two Stocks to Sell:
Transcat (TRNS)
Market Cap: $764.8 million
Serving the pharmaceutical, industrial manufacturing, energy, and chemical process industries, Transcat (NASDAQ:TRNS) provides measurement instruments and supplies.
Why Does TRNS Fall Short?
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Issuance of new shares over the last two years caused its earnings per share to fall by 15.9% annually while its revenue grew
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Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up
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Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Transcat is trading at $81.69 per share, or 41.1x forward P/E. If you’re considering TRNS for your portfolio, see our FREE research report to learn more.
Solaris Energy Infrastructure (SEI)
Market Cap: $4.17 billion
After acquiring Mobile Energy Rentals in 2024 to enter the distributed power market, Solaris Energy Infrastructure (NYSE:SEI) leases mobile power equipment and provides logistics services for oil and gas well completion.
Why Do We Think Twice About SEI?
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Revenue base of $762.2 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
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Cash-burning history makes us doubt the long-term viability of its business model
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Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $65.75 per share, Solaris Energy Infrastructure trades at 27x forward P/E. Read our free research report to see why you should think twice about including SEI in your portfolio, it’s free.
One Stock to Buy:
Nicolet Bankshares (NIC)
Market Cap: $3.45 billion
Starting as Green Bay Financial Corporation in 2000 before rebranding in 2002, Nicolet Bankshares (NYSE:NIC) is a regional bank holding company that provides commercial, agricultural, and consumer banking services primarily in Wisconsin, Michigan, and Minnesota.
Why Are We Bullish on NIC?
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Impressive 27.9% annual net interest income growth over the last five years indicates it’s winning market share this cycle
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Notable projected net interest income growth of 21.7% for the next 12 months hints at market share gains
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Net interest margin jumped by 68.3 basis points (100 basis points = 1 percentage point) over the last two years, giving the firm more resources to pursue growth initiatives
