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. Keeping that in mind, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.
America's Car-Mart (CRMT)
Market Cap: $187 million
With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ: CRMT) sells used cars to budget-conscious consumers.
Why Do We Pass on CRMT?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Revenue growth over the past three years was nullified by the company’s new share issuances as its earnings per share fell by 74.7% annually
- High net-debt-to-EBITDA ratio of 19× increases the risk of forced asset sales or dilutive financing if operational performance weakens
America's Car-Mart’s stock price of $22.53 implies a valuation ratio of 62.3x forward P/E. Check out our free in-depth research report to learn more about why CRMT doesn’t pass our bar.
Kadant (KAI)
Market Cap: $3.85 billion
Headquartered in Massachusetts, Kadant (NYSE: KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.
Why Are We Hesitant About KAI?
- Muted 4.8% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 3.9% annually while its revenue grew
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Kadant is trading at $327.08 per share, or 31.4x forward P/E. Read our free research report to see why you should think twice about including KAI in your portfolio.
Merit Medical Systems (MMSI)
Market Cap: $4.85 billion
Founded in 1987 and now offering over 1,700 patented products across global markets, Merit Medical Systems (NASDAQ: MMSI) manufactures and markets specialized medical devices used in minimally invasive procedures for cardiology, radiology, oncology, critical care, and endoscopy.
Why Does MMSI Fall Short?
- Revenue base of $1.48 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- ROIC of 4.9% reflects management’s challenges in identifying attractive investment opportunities
At $81.82 per share, Merit Medical Systems trades at 21.1x forward P/E. If you’re considering MMSI for your portfolio, see our FREE research report to learn more.
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