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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here are three Russell 2000 stocks to avoid and better alternatives to consider.
Atkore (ATKR)
Market Cap: $3.18 billion
Protecting the things that power our world, Atkore (NYSE:ATKR) designs and manufactures electrical safety products.
Why Is ATKR Risky?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5.5% annually over the last two years
- Free cash flow margin shrank by 11.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Eroding returns on capital suggest its historical profit centers are aging
Atkore’s stock price of $94.27 implies a valuation ratio of 15.2x forward P/E. To fully understand why you should be careful with ATKR, check out our full research report (it’s free).
Hertz (HTZ)
Market Cap: $737.9 million
Started with a dozen Model T Fords, Hertz (NASDAQ:HTZ) is a global car rental company providing vehicle rental services to leisure and business travelers.
Why Are We Bearish on HTZ?
- Annual sales declines of 2.2% for the past two years show its products and services struggled to connect with the market during this cycle
- Diminishing returns on capital suggest its earlier profit pools are drying up
- High net-debt-to-EBITDA ratio of 9× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $2.08 per share, Hertz trades at 56.1x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than HTZ.
Novavax (NVAX)
Market Cap: $1.62 billion
Pioneering a nanoparticle technology that mimics the molecular structure of disease pathogens, Novavax (NASDAQ:NVAX) develops and commercializes protein-based vaccines for infectious diseases, with a primary focus on its COVID-19 vaccine and combination respiratory vaccine candidates.
Why Should You Sell NVAX?
- Annual sales declines of 18.9% for the past five years show its products and services struggled to connect with the market during this cycle
- Overall productivity fell over the last two years as its plummeting sales were accompanied by a decline in its adjusted operating margin
- Cash burn makes us question whether it can achieve sustainable long-term growth
Novavax is trading at $9.83 per share, or 7x forward price-to-sales. If you’re considering NVAX for your portfolio, see our FREE research report to learn more.
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