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. That said, here are three Russell 2000 stocks to avoid and better alternatives to consider.
AMC Entertainment (AMC)
Market Cap: $1.20 billion
With a profile that was raised due to meme stock mania beginning in 2021, AMC Entertainment (NYSE: AMC) operates movie theaters primarily in the US and Europe.
Why Do We Think Twice About AMC?
- Products and services have few die-hard fans as sales have declined by 2.7% annually over the last five years
- Cash-burning history makes us doubt the long-term viability of its business model
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
AMC Entertainment is trading at $2.82 per share, or 2x forward EV-to-EBITDA. If you’re considering AMC for your portfolio, see our FREE research report to learn more.
Option Care Health (OPCH)
Market Cap: $4.53 billion
With a nationwide network of 177 locations serving 43 states and a team of over 4,500 clinicians, Option Care Health (NASDAQ: OPCH) is the largest independent provider of home and alternate site infusion services, delivering medications and clinical support to patients across the United States.
Why Are We Hesitant About OPCH?
At $27.36 per share, Option Care Health trades at 15.6x forward P/E. Read our free research report to see why you should think twice about including OPCH in your portfolio.
National Bank Holdings (NBHC)
Market Cap: $1.38 billion
Operating under familiar local brands like Community Banks of Colorado, Bank Midwest, and Bank of Jackson Hole, National Bank Holdings (NYSE: NBHC) operates regional banks across Colorado, Kansas, Missouri, Wyoming, Texas, and other western states, offering commercial, business, and consumer banking services.
Why Does NBHC Fall Short?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Net interest margin shrank by 24 basis points (100 basis points = 1 percentage point) over the last two years, suggesting the yields on its loan book are decreasing or the market is becoming more competitive
- Efficiency ratio is expected to worsen by 4.8 percentage points over the next year
National Bank Holdings’s stock price of $36.31 implies a valuation ratio of 1x forward P/B. Check out our free in-depth research report to learn more about why NBHC doesn’t pass our bar.
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