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.

Asana (ASAN)

Market Cap: $3.25 billion

Born from the founders' frustration with the inefficiencies of email-based collaboration at Facebook, Asana (NYSE: ASAN) provides a work management platform that helps organizations track projects, set goals, and manage workflows in a centralized digital workspace.

Why Are We Out on ASAN?

1. Products, pricing, or go-to-market strategy may need some adjustments as its 9.3% average billings growth over the last year was weak
2. Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 95.7% net revenue retention rate
3. Complex implementation process for enterprise clients means customers take longer to ramp up, as seen in its extended payback periods

Asana is trading at $13.69 per share, or 3.9x forward price-to-sales. Check out our free in-depth research report to learn more about why ASAN doesn’t pass our bar.

AMN Healthcare Services (AMN)

Market Cap: $605.4 million

With a network of thousands of healthcare professionals ranging from nurses to physicians to executives, AMN Healthcare (NYSE: AMN) provides healthcare workforce solutions including temporary staffing, permanent placement, and technology platforms for hospitals and healthcare facilities across the United States.

Why Do We Steer Clear of AMN?

1. Declining travelers on assignment over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Earnings per share have dipped by 10.5% annually over the past five years, which is concerning because stock prices follow EPS over the long term
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

AMN Healthcare Services’s stock price of $15.70 implies a valuation ratio of 21.7x forward P/E. Read our free research report to see why you should think twice about including AMN in your portfolio.

Connection (CNXN)

Market Cap: $1.46 billion

Starting as a small computer products seller in 1982 and evolving into a Fortune 1000 company, Connection (NASDAQ: CNXN) is a technology solutions provider that helps businesses and government agencies design, purchase, implement, and manage their IT infrastructure and systems.

Why Do We Think CNXN Will Underperform?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 4.5% annually
3. Poor free cash flow margin of 3.1% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

At $57.84 per share, Connection trades at 16.1x forward P/E. If you’re considering CNXN for your portfolio, see our FREE research report to learn more.

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