Small-cap stocks in the Russell 2000 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.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
Park-Ohio (PKOH)
Market Cap: $277.4 million
Based in Cleveland, Park-Ohio (NASDAQ: PKOH) provides supply chain management services, capital equipment, and manufactured components.
Why Should You Sell PKOH?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Gross margin of 15% reflects its high production costs
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.6% for the last five years
Park-Ohio’s stock price of $19.43 implies a valuation ratio of 5.5x forward price-to-earnings. If you’re considering PKOH for your portfolio, see our FREE research report to learn more.
LGI Homes (LGIH)
Market Cap: $1.41 billion
Based in Texas, LGI Homes (NASDAQ: LGIH) is a homebuilding company specializing in constructing affordable, entry-level single-family homes in desirable communities across the United States.
Why Do We Avoid LGIH?
- New orders were hard to come by as its average backlog growth of 3.4% over the past two years underwhelmed
- Waning returns on capital imply its previous profit engines are losing steam
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $56.27 per share, LGI Homes trades at 5.9x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than LGIH.
Ziff Davis (ZD)
Market Cap: $1.50 billion
Originally a pioneering technology publisher founded in 1927 that became famous for PC Magazine, Ziff Davis (NASDAQ: ZD) operates a portfolio of digital media brands and subscription services across technology, shopping, gaming, healthcare, and cybersecurity markets.
Why Do We Steer Clear of ZD?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Free cash flow margin shrank by 8.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Ziff Davis is trading at $32.79 per share, or 4.7x forward price-to-earnings. Check out our free in-depth research report to learn more about why ZD doesn’t pass our bar.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
