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 three Russell 2000 stocks that don’t make the cut and some better choices instead.
Altice (ATUS)
Market Cap: $1.10 billion
Based in Long Island City, Altice USA (NYSE: ATUS) is a telecommunications company offering cable, internet, telephone, and television services across the United States.
Why Do We Steer Clear of ATUS?
- Performance surrounding its broadband subscribers has lagged its peers
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Altice’s stock price of $2.38 implies a valuation ratio of 0.3x forward EV-to-EBITDA. If you’re considering ATUS for your portfolio, see our FREE research report to learn more.
Northwest Pipe (NWPX)
Market Cap: $521 million
Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe (NASDAQ: NWPX) is a manufacturer of pipeline systems for water infrastructure.
Why Is NWPX Not Exciting?
- Annual revenue growth of 5.9% over the last two years was below our standards for the industrials sector
- Gross margin of 17.6% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Issuance of new shares over the last five years caused its earnings per share growth of 1% to lag its revenue gains
At $53.97 per share, Northwest Pipe trades at 16.4x forward P/E. To fully understand why you should be careful with NWPX, check out our full research report (it’s free).
LeMaitre (LMAT)
Market Cap: $2.16 billion
Founded in 1983 and named after a pioneering vascular surgeon, LeMaitre Vascular (NASDAQGM:LMAT) develops and manufactures specialized medical devices used by vascular surgeons to treat peripheral vascular disease and other circulatory conditions.
Why Do We Think Twice About LMAT?
- Modest revenue base of $234.6 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Efficiency has decreased over the last five years as its operating margin fell by 2.3 percentage points
- Free cash flow margin dropped by 4.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
LeMaitre is trading at $95.75 per share, or 41.2x forward P/E. Read our free research report to see why you should think twice about including LMAT in your portfolio.
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