Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
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. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
Olo (OLO)
Market Cap: $1.73 billion
Processing over two million orders daily across 80,000 restaurant locations nationwide, Olo (NYSE: OLO) provides an enterprise-grade SaaS platform that powers digital ordering, delivery, and payment systems for restaurant brands across the United States.
Why Does OLO Fall Short?
- Gross margin of 53.3% reflects its high servicing costs
- Suboptimal cost structure is highlighted by its history of operating margin losses
Olo’s stock price of $10.22 implies a valuation ratio of 5.1x forward price-to-sales. To fully understand why you should be careful with OLO, check out our full research report (it’s free).
Edgewell Personal Care (EPC)
Market Cap: $1.09 billion
Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care (NYSE: EPC) sells personal care products in the skin and sun care, shave, and feminine care categories.
Why Should You Dump EPC?
- 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
- Performance over the past three years shows each sale was less profitable, as its earnings per share fell by 2.6% annually
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 4.9 percentage points
At $23.55 per share, Edgewell Personal Care trades at 7.3x forward P/E. Dive into our free research report to see why there are better opportunities than EPC.
Navient (NAVI)
Market Cap: $1.28 billion
Spun off from Sallie Mae in 2014 to handle the company's loan servicing and collection operations, Navient (NASDAQ: NAVI) provides education loan servicing and business processing solutions that help manage federal student loans, private education loans, and government services.
Why Do We Pass on NAVI?
- Annual sales declines of 12.1% for the past five years show its products and services struggled to connect with the market during this cycle
- Earnings per share have dipped by 4.1% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- High debt-to-equity ratio of 18.7× shows the firm carries too much debt relative to shareholder equity, increasing bankruptcy risk
Navient is trading at $12.92 per share, or 11.4x forward P/E. If you’re considering NAVI for your portfolio, see our FREE research report to learn more.
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