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.
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 that don’t make the cut and some better choices instead.
Sprinklr (CXM)
Market Cap: $1.78 billion
With a proprietary AI engine processing 450 million data points daily across 30+ digital channels, Sprinklr (NYSE: CXM) provides cloud-based software that helps large enterprises manage customer experiences across social, messaging, chat, and voice channels.
Why Do We Think CXM Will Underperform?
- Average billings growth of 3.1% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its two-year trend
- Operating margin was unchanged over the last year, suggesting it failed to gain leverage on its fixed costs
At $7.22 per share, Sprinklr trades at 2.3x forward price-to-sales. If you’re considering CXM for your portfolio, see our FREE research report to learn more.
Caleres (CAL)
Market Cap: $369.6 million
The owner of Dr. Scholl's, Caleres (NYSE: CAL) is a footwear company offering a range of styles.
Why Is CAL Risky?
- Annual revenue declines of 3.6% over the last two years indicate problems with its market positioning
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2% for the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Caleres is trading at $10.91 per share, or 5.1x forward P/E. Dive into our free research report to see why there are better opportunities than CAL.
HA Sustainable Infrastructure Capital (HASI)
Market Cap: $4.16 billion
With a proprietary "CarbonCount" metric that quantifies the environmental impact of each dollar invested, HA Sustainable Infrastructure Capital (NYSE: HASI) is an investment firm that finances and develops climate-positive infrastructure projects across renewable energy, energy efficiency, and ecological restoration.
Why Are We Hesitant About HASI?
- Below-average return on equity indicates management struggled to find compelling investment opportunities
HA Sustainable Infrastructure Capital’s stock price of $33.68 implies a valuation ratio of 11.9x forward P/E. Read our free research report to see why you should think twice about including HASI in your portfolio.
High-Quality Stocks for All Market Conditions
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