However, the Russell 2000 does contain a few winners. An index with 2,000 holdings ought to have a few top performers. Yet, investors who aren’t familiar with the Russell 2000 may be underestimating the type of gains you can find in the index. Some Russell 2000 stocks have gained 1,000% within a few years. Every corporation has to start somewhere. And before a company becomes established in the S&P 500, it could have been in the Russell 2000 first.
The Russell 2000 offers some investment ideas that are the equivalent to getting into big companies before they generate mainstream attention. These Russell 2000 stocks have plenty of potential and aren’t receive much traction from Wall Street.
Sprouts Farmers Market (SFM)
The Arizona-based Sprouts Farmers Market (NASDAQ:SFM) is crushing the stock market while trading at a reasonable 28 P/E ratio. Shares have jumped by 65% year-to-date (YTD) and have gained 327% over the past five years. It isn’t a high-profile tech giant. Yet, it’s achieving sufficient financial growth to justify its valuation and returns.
The supermarket chain reported 9% year-over-year (YOY) revenue growth in the first quarter. Net income was up by 50% YOY. The company’s net profit margin came in at 6.1% for the quarter, which is a 38% improvement.
Moreover, Sprouts Farmers Market has 414 stores in 23 states, giving them plenty of room to expand into additional markets. The company opened seven new stores in the quarter. That’s a 1.7% sequential increase. Sprouts Farmers Market had enough leftover cash to buy back $60 million worth of shares. That buyback constitutes almost 1% of the corporation’s $8 billion market cap.
SPS Commerce (SPSC)
SPS Commerce (NASDAQ:SPSC) is a leader in cloud-based supply chain management solutions. The stock has been roughly flat over the past year but has surged by 263% over the past five years. Revenue and net income are both on the rise. The firm reported 19% YOY revenue growth and 18% YOY net income growth in Q1.
This quarter continues an impressive stretch for the cloud company. It’s the 93rd consecutive quarter of top line growth, and a recurring revenue model suggests the gains will continue. Recurring revenue increased by 19% from the first quarter of 2023 as the company continues to gain market share.
SPS commerce offers fiscal 2024 guidance that suggests revenue growth will range from 15% to 16% compared to 2023. Net income per diluted share is expected to range from $1.99 to $2.02 per share. The stock isn’t cheap, but the firm is still growing. A slow year gives new investors the opportunity to accumulate shares before SPS Commerce picks up more traction.
Duolingo (DUOL)
Duolingo (NASDAQ:DUOL) makes it easier for people to learn new languages and skills. The educational app offers verbal and written lessons that gamify the learning experience. Shares are up by 51% over the past year, and recent financial results suggest that the gains can compound from here.
Also, the educational tech firm reported 45% YOY revenue growth in the first quarter. And, Duolingo generated $27.0 million in net income compared to a net loss of $2.6 million in the same quarter last year.
Clearly, people are getting more active on the app which suggests Duolingo’s financials should continue to grow. More than 31.4 million people use the app daily while almost 100 million people use the app every month. Daily active users and monthly active users increased by 54% and 35% respectively from the same quarter last year. Wall Street analysts have rated Duolingo as a moderate buy with a projected 24% upside from current levels.
On the date of publication, Marc Guberti did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
