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.
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.
Steven Madden (SHOO)
Market Cap: $2.72 billion
As seen in the infamous Wolf of Wall Street movie, Steven Madden (NASDAQ: SHOO) is a fashion brand famous for its trendy and innovative footwear, appealing to a young and style-conscious audience.
Why Do We Think SHOO Will Underperform?
- Annual revenue growth of 16.1% over the last five years was below our standards for the consumer discretionary sector
- Low free cash flow margin of 6.1% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Steven Madden is trading at $36.87 per share, or 16.9x forward P/E. Check out our free in-depth research report to learn more about why SHOO doesn’t pass our bar.
Janus (JBI)
Market Cap: $730.4 million
Standing out with its digital keyless entry into self-storage room technology, Janus (NYSE: JBI) is a provider of easily accessible self-storage solutions.
Why Are We Wary of JBI?
- Annual sales declines of 8.9% for the past two years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Janus’s stock price of $5.28 implies a valuation ratio of 7.9x forward P/E. Read our free research report to see why you should think twice about including JBI in your portfolio.
Expro (XPRO)
Market Cap: $1.94 billion
Operating in over 50 countries from deepwater offshore platforms to remote onshore fields, Expro (NYSE: XPRO) provides equipment and services that help oil and gas companies drill wells, measure production, and maintain well integrity.
Why Are We Hesitant About XPRO?
- Revenue base of $1.61 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 19.9%
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
At $16.96 per share, Expro trades at 17.8x forward P/E. If you’re considering XPRO for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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