The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
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.
Revolve (RVLV)
Market Cap: $1.56 billion
Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NYSE: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.
Why Do We Think Twice About RVLV?
- Sales trends were unexciting over the last three years as its 6.6% annual growth was below the typical consumer internet company
- May need to improve its platform and marketing strategy as its 6.5% average growth in active customers underwhelmed
- High marketing expenses suggest it needs to spend heavily on new customer acquisition to sustain momentum
Revolve’s stock price of $22.05 implies a valuation ratio of 13.2x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than RVLV.
Sonos (SONO)
Market Cap: $2.07 billion
A pioneer in connected home audio systems, Sonos (NASDAQ: SONO) offers a range of premium wireless speakers and sound systems.
Why Are We Bearish on SONO?
- Products and services aren’t resonating with the market as its revenue declined by 2.6% annually over the last five years
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 6.3% for the last two years
At $17.47 per share, Sonos trades at 19.1x forward P/E. If you’re considering SONO for your portfolio, see our FREE research report to learn more.
Universal Logistics (ULH)
Market Cap: $438.5 million
Founded in 1932, Universal Logistics (NASDAQ: ULH) is a provider of customized transportation and logistics solutions operating throughout the United States and in Mexico, Canada, and Colombia.
Why Is ULH Risky?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Waning returns on capital imply its previous profit engines are losing steam
Universal Logistics is trading at $16.62 per share, or 16.3x forward P/E. Read our free research report to see why you should think twice about including ULH in your portfolio.
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