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.

Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. That said, here are three Russell 2000 stocks to avoid and better alternatives to consider.

RE/MAX (RMAX)

Market Cap: $143.3 million

Short for Real Estate Maximums, RE/MAX (NYSE: RMAX) operates a real estate franchise network spanning over 100 countries and territories.

Why Do We Think RMAX Will Underperform?

1. Demand for its offerings was relatively low as its number of agents has underwhelmed
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 8.9% annually while its revenue grew
3. ROIC of 0% reflects management’s challenges in identifying attractive investment opportunities

RE/MAX’s stock price of $7.55 implies a valuation ratio of 5.5x forward P/E. Dive into our free research report to see why there are better opportunities than RMAX.

Blink Charging (BLNK)

Market Cap: $74.05 million

One of the first EV charging companies to go public, Blink Charging (NASDAQ: BLNK) is a manufacturer, owner, operator, and provider of electric vehicle charging equipment and networked EV charging services.

Why Are We Cautious About BLNK?

1. Issuance of new shares over the last five years caused its earnings per share to fall by 10.2% annually while its revenue grew
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Blink Charging is trading at $0.72 per share, or 0.7x forward price-to-sales. Check out our free in-depth research report to learn more about why BLNK doesn’t pass our bar.

Tri Pointe Homes (TPH)

Market Cap: $2.71 billion

Established in 2009 in California, Tri Pointe Homes (NYSE: TPH) is a United States homebuilder recognized for its innovative and sustainable approach to creating premium, life-enhancing homes.

Why Do We Steer Clear of TPH?

1. Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 6.9% declines over the past two years
2. Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
3. 8.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $29.85 per share, Tri Pointe Homes trades at 9.6x forward P/E. Read our free research report to see why you should think twice about including TPH in your portfolio.

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