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.
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 that don’t make the cut and some better choices instead.
Sanmina (SANM)
Market Cap: $6.24 billion
Founded in 1980, Sanmina (NASDAQ: SANM) is an electronics manufacturing services company offering end-to-end solutions for various industries.
Why Do We Pass on SANM?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6% annually over the last two years
- High input costs result in an inferior gross margin of 8.2% that must be offset through higher volumes
- Earnings per share have dipped by 3.8% annually over the past two years, which is concerning because stock prices follow EPS over the long term
Sanmina is trading at $117.58 per share, or 17x forward P/E. Read our free research report to see why you should think twice about including SANM in your portfolio.
Greenbrier (GBX)
Market Cap: $1.39 billion
Having designed the industry’s first double-decker railcar in the 1980s, Greenbrier (NYSE: GBX) supplies the freight rail transportation industry with railcars and related services.
Why Does GBX Fall Short?
- Sales tumbled by 4.5% annually over the last two years, showing market trends are working against its favor during this cycle
- Gross margin of 13.5% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Cash burn makes us question whether it can achieve sustainable long-term growth
Greenbrier’s stock price of $45.11 implies a valuation ratio of 4.7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than GBX.
NV5 Global (NVEE)
Market Cap: $1.51 billion
Operating from over 100 locations across the U.S. and internationally, NV5 Global (NASDAQ: NVEE) provides engineering, environmental, geospatial, and technical consulting services to public and private sector clients for infrastructure and building projects.
Why Are We Hesitant About NVEE?
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 5.1 percentage points
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 2.8% annually while its revenue grew
- Free cash flow margin shrank by 13.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $22.56 per share, NV5 Global trades at 17x forward P/E. To fully understand why you should be careful with NVEE, check out our full research report (it’s free).
Stocks We Like More
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