The Russell 2000 (^RUT) 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.

Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.

Bark (BARK)

Market Cap: $137.6 million

Making a name for itself with the BarkBox, Bark (NYSE: BARK) specializes in subscription-based, personalized pet products.

Why Are We Out on BARK?

1. Products and services aren't resonating with the market as its revenue declined by 5.3% annually over the last two years
2. Poor free cash flow margin of -0.9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $0.83 per share, Bark trades at 121x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than BARK.

Belden (BDC)

Market Cap: $4.92 billion

With its enamel-coated copper wire used in WWI for the Allied forces, Belden (NYSE: BDC) designs, manufactures, and sells electronic components to various industries.

Why Does BDC Fall Short?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 5%
3. Flat earnings per share over the last two years underperformed the sector average

Belden is trading at $124.18 per share, or 16.6x forward P/E. If you’re considering BDC for your portfolio, see our FREE research report to learn more.

Orion (ORN)

Market Cap: $261.9 million

Established in 1994, Orion (NYSE: ORN) provides construction services for marine infrastructure and industrial projects.

Why Do We Steer Clear of ORN?

1. Backlog has dropped by 1.7% on average over the past two years, suggesting it’s losing orders as competition picks up
2. Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 9.3%
3. Cash-burning history makes us doubt the long-term viability of its business model

Orion’s stock price of $6.59 implies a valuation ratio of 27.8x forward P/E. To fully understand why you should be careful with ORN, check out our full research report (it’s free).

Stocks We Like More

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