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 to steer clear of and some alternatives to watch instead.
AMC Networks (AMCX)
Market Cap: $496.2 million
Originally the joint-venture of four cable television companies, AMC Networks (NASDAQ: AMCX) is a broadcaster producing a diverse range of television shows and movies.
Why Do We Steer Clear of AMCX?
- Sales tumbled by 5% annually over the last five years, showing consumer trends are working against it
- Poor free cash flow margin of 10.3% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
AMC Networks is trading at $12.04 per share, or 2.8x forward P/E. Dive into our free research report to see why there are better opportunities than AMCX.
Helios (HLIO)
Market Cap: $2.72 billion
Founded on the principle of treating others as one wants to be treated, Helios (NYSE: HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.
Why Are We Bearish on HLIO?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 8.4 percentage points
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Helios’s stock price of $84.83 implies a valuation ratio of 27.3x forward P/E. Read our free research report to see why you should think twice about including HLIO in your portfolio.
Frontier (ULCC)
Market Cap: $1.83 billion
Recognizable for the colorful animals adorning each aircraft tail, Frontier Group Holdings (NASDAQ: ULCC) is an ultra low-cost airline that provides budget-friendly flights throughout the United States and select international destinations in the Americas.
Why Should You Sell ULCC?
- Lackluster 8.2% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
At $7.99 per share, Frontier trades at 27.7x forward P/E. If you’re considering ULCC for your portfolio, see our FREE research report to learn more.
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