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.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. Keeping that in mind, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
Teladoc (TDOC)
Market Cap: $1.48 billion
Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE: TDOC) is a telemedicine platform that facilitates remote doctor’s visits.
Why Does TDOC Worry Us?
- Lackluster 6% annual revenue growth over the last three years indicates the company is losing ground to competitors
- Preference for prioritizing user growth over monetization has led to 5.3% annual drops in its average revenue per user
- Projected sales decline of 1.3% for the next 12 months points to a tough demand environment ahead
Teladoc is trading at $8.47 per share, or 4.8x forward EV/EBITDA. Read our free research report to see why you should think twice about including TDOC in your portfolio.
Kadant (KAI)
Market Cap: $3.90 billion
Headquartered in Massachusetts, Kadant (NYSE: KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.
Why Are We Wary of KAI?
- Muted 7.2% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Earnings per share lagged its peers over the last two years as they only grew by 3.4% annually
Kadant’s stock price of $331.13 implies a valuation ratio of 32.6x forward P/E. Dive into our free research report to see why there are better opportunities than KAI.
Lindsay (LNN)
Market Cap: $1.49 billion
A pioneer in the field of center pivot and lateral move irrigation, Lindsay (NYSE: LNN) provides a variety of proprietary water management and road infrastructure products and services.
Why Are We Hesitant About LNN?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Projected sales decline of 2.6% over the next 12 months indicates demand will continue deteriorating
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4% annually
At $137.02 per share, Lindsay trades at 21.5x forward P/E. If you’re considering LNN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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