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.

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 that don’t make the cut and some better choices instead.

PubMatic (PUBM)

Market Cap: $539.7 million

Founded in 2006 as an online ad platform helping ad sellers, Pubmatic (NASDAQ: PUBM) is a fully integrated cloud-based programmatic advertising platform.

Why Do We Think Twice About PUBM?

1. Sales trends were unexciting over the last three years as its 6.6% annual growth was well below the typical software company
2. Estimated sales growth of 4.4% for the next 12 months implies demand will slow from its three-year trend
3. Gross margin of 64.9% reflects its relatively high servicing costs

PubMatic’s stock price of $11.47 implies a valuation ratio of 1.8x forward price-to-sales. If you’re considering PUBM for your portfolio, see our FREE research report to learn more.

TreeHouse Foods (THS)

Market Cap: $984.8 million

Whether it be packaged crackers, broths, or beverages, Treehouse Foods (NYSE: THS) produces a wide range of private-label foods for grocery and food service customers.

Why Is THS Risky?

1. Declining unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
2. Gross margin of 16.5% is an output of its commoditized products
3. Underwhelming 1.5% return on capital reflects management’s difficulties in finding profitable growth opportunities

At $19 per share, TreeHouse Foods trades at 9.8x forward P/E. Read our free research report to see why you should think twice about including THS in your portfolio.

Perdoceo Education (PRDO)

Market Cap: $1.93 billion

Formerly known as Career Education Corporation, Perdoceo Education (NASDAQ: PRDO) is an educational services company that specializes in postsecondary education.

Why Are We Hesitant About PRDO?

1. Annual revenue growth of 2.9% over the last two years was below our standards for the consumer discretionary sector
2. Eroding returns on capital suggest its historical profit centers are aging

Perdoceo Education is trading at $29.70 per share, or 19x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why PRDO doesn’t pass our bar.

Stocks We Like More

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