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 to steer clear of and some alternatives to watch instead.
Steven Madden (SHOO)
Market Cap: $2.78 billion
As seen in the infamous Wolf of Wall Street movie, Steven Madden (NASDAQ: SHOO) is a fashion brand famous for its trendy and innovative footwear, appealing to a young and style-conscious audience.
Why Does SHOO Give Us Pause?
- Annual revenue growth of 10.6% over the last two years was below our standards for the consumer discretionary sector
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
- Eroding returns on capital suggest its historical profit centers are aging
Steven Madden’s stock price of $38.21 implies a valuation ratio of 17.7x forward P/E. Dive into our free research report to see why there are better opportunities than SHOO.
10x Genomics (TXG)
Market Cap: $1.93 billion
Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ: TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.
Why Are We Wary of TXG?
- 4.2% annual revenue growth over the last two years was slower than its healthcare peers
- Cash-burning history makes us doubt the long-term viability of its business model
- Negative returns on capital show that some of its growth strategies have backfired
At $15.22 per share, 10x Genomics trades at 3.2x forward price-to-sales. Check out our free in-depth research report to learn more about why TXG doesn’t pass our bar.
Horace Mann Educators (HMN)
Market Cap: $1.85 billion
Founded in 1945 and named after the 19th-century education reformer known as the "father of American public education," Horace Mann Educators (NYSE: HMN) is an insurance company that specializes in providing auto, property, life, and retirement products tailored for educators and other public service employees.
Why Do We Think Twice About HMN?
- Growth in insurance policies was lackluster over the last five years as its 5.5% annual growth underperformed the typical financial institution
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 3.1% annually over the last five years
- ROE of 6.7% reflects management’s challenges in identifying attractive investment opportunities
Horace Mann Educators is trading at $46.24 per share, or 1.3x forward P/B. If you’re considering HMN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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