The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
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.
MGP Ingredients (MGPI)
Market Cap: $640.9 million
Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ: MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry
Why Do We Think MGPI Will Underperform?
- Sales tumbled by 2.8% annually over the last three years, showing consumer trends are working against its favor
- Projected sales decline of 19.8% over the next 12 months indicates demand will continue deteriorating
- Operating margin declined by 10 percentage points over the last year as its sales cratered
MGP Ingredients is trading at $30.13 per share, or 11.3x forward P/E. Dive into our free research report to see why there are better opportunities than MGPI.
TEGNA (TGNA)
Market Cap: $2.71 billion
Spun out of Gannett in 2015, TEGNA (NYSE: TGNA) is a media company operating a network of television stations and digital platforms, focusing on local news and community content.
Why Are We Out on TGNA?
- Annual sales declines of 2.8% for the past two years show its products and services struggled to connect with the market
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 8.8 percentage points over the next year
At $16.89 per share, TEGNA trades at 8.1x forward P/E. To fully understand why you should be careful with TGNA, check out our full research report (it’s free).
Apogee (APOG)
Market Cap: $838.1 million
Involved in the design of the Apple Store on Fifth Avenue in New York City, Apogee (NASDAQ: APOG) sells architectural products and services such as high-performance glass for commercial buildings.
Why Is APOG Not Exciting?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Free cash flow margin dropped by 2.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Apogee’s stock price of $38.84 implies a valuation ratio of 9.2x forward P/E. Check out our free in-depth research report to learn more about why APOG doesn’t pass our bar.
Stocks We Like More
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