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. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Alta (ALTG)
Market Cap: $198.2 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 Do We Steer Clear of ALTG?
- Muted 5.8% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Cash-burning history makes us doubt the long-term viability of its business model
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Alta’s stock price of $5.97 implies a valuation ratio of 1.1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why ALTG doesn’t pass our bar.
Enpro (NPO)
Market Cap: $3.91 billion
Holding a Guinness World Record for creating the world's largest gasket, Enpro (NYSE: NPO) designs, manufactures, and sells products used for machinery in various industries.
Why Are We Cautious About NPO?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.1% annually over the last five years
- Earnings per share have dipped by 2.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Underwhelming 6.7% return on capital reflects management’s difficulties in finding profitable growth opportunities
Enpro is trading at $185.86 per share, or 24x forward P/E. Read our free research report to see why you should think twice about including NPO in your portfolio.
REV Group (REVG)
Market Cap: $2.17 billion
Offering the first full-electric North American fire truck, REV (NYSE: REVG) manufactures and sells specialty vehicles.
Why Are We Wary of REVG?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 12%
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
At $44.39 per share, REV Group trades at 15.9x forward P/E. Dive into our free research report to see why there are better opportunities than REVG.
High-Quality Stocks for All Market Conditions
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