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 steer clear of and some alternatives to watch instead.
Alta (ALTG)
Market Cap: $219.6 million
Founded in 1984, Alta Equipment Group (NYSE: ALTG) is a provider of industrial and construction equipment and services across the Midwest and Northeast United States.
Why Is ALTG Risky?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2% annually over the last two years
- Earnings per share fell by 35.6% annually over the last five years while its revenue grew, partly because it diluted shareholders
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $7.67 per share, Alta trades at 0.1x forward price-to-sales. To fully understand why you should be careful with ALTG, check out our full research report (it’s free).
UFP Industries (UFPI)
Market Cap: $4.77 billion
Beginning as a lumber supplier in the 1950s, UFP Industries (NASDAQ: UFPI) is a holding company making building materials for the construction, retail, and industrial sectors.
Why Are We Out on UFPI?
- Sales tumbled by 6.2% annually over the last two years, showing market trends are working against it during this cycle
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
UFP Industries is trading at $86.58 per share, or 17.4x forward P/E. Read our free research report to see why you should think twice about including UFPI in your portfolio.
Republic Bancorp (RBCAA)
Market Cap: $1.70 billion
With roots dating back to 1974 and operating across multiple states including Kentucky, Indiana, Florida, Ohio, and Tennessee, Republic Bancorp (NASDAQGS:RBCA.A) is a Kentucky-based financial holding company that operates a bank offering traditional banking, mortgage services, and specialized financial products.
Why Is RBCAA Not Exciting?
- Net interest income trends were unexciting over the last five years as its 5.4% annual growth was below the typical banking firm
- Estimated net interest income growth of 3.9% for the next 12 months implies demand will slow from its five-year trend
- Estimated tangible book value per share growth of 8% for the next 12 months implies profitability will slow from its two-year trend
Republic Bancorp’s stock price of $84.76 implies a valuation ratio of 1.4x forward P/B. If you’re considering RBCAA for your portfolio, see our FREE research report to learn more.
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