The Russell 2000 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.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. Keeping that in mind, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
Kratos (KTOS)
Market Cap: $4.69 billion
Established with a commitment to supporting national security, Kratos (NASDAQ: KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.
Why Does KTOS Worry Us?
- Increased cash burn over the last five years raises questions about the return timeline for its investments
- Underwhelming 3.8% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam
Kratos’s stock price of $29.98 implies a valuation ratio of 53.1x forward price-to-earnings. Check out our free in-depth research report to learn more about why KTOS doesn’t pass our bar.
Blink Charging (BLNK)
Market Cap: $94.69 million
One of the first EV charging companies to go public, Blink Charging (NASDAQ: BLNK) is a manufacturer, owner, operator, and provider of electric vehicle charging equipment and networked EV charging services.
Why Are We Wary of BLNK?
- Earnings per share fell by 10% annually over the last five years while its revenue grew, partly because it diluted shareholders
- Negative free cash flow raises questions about the return timeline for its investments
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $0.90 per share, Blink Charging trades at 0.8x forward price-to-sales. Read our free research report to see why you should think twice about including BLNK in your portfolio.
CRA (CRAI)
Market Cap: $1.18 billion
Often retained for high-stakes matters with multibillion-dollar implications, CRA International (NASDAQ: CRAI) provides economic, financial, and management consulting services to corporations, law firms, and government agencies for litigation, regulatory proceedings, and business strategy.
Why Does CRAI Fall Short?
- Subscale operations are evident in its revenue base of $687.4 million, meaning it has fewer distribution channels than its larger rivals
- Estimated sales decline of 1.2% for the next 12 months implies a challenging demand environment
- Free cash flow margin shrank by 2.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
CRA is trading at $171.55 per share, or 22.8x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than CRAI.
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