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 avoid and better alternatives to consider.
Acushnet (GOLF)
Market Cap: $4.47 billion
Producer of the acclaimed Titleist Pro V1 golf ball, Acushnet (NYSE:GOLF) is a design and manufacturing company specializing in performance-driven golf products.
Why Are We Hesitant About GOLF?
- Lackluster 2.2% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Projected sales growth of 1.1% for the next 12 months suggests sluggish demand
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Acushnet’s stock price of $77.37 implies a valuation ratio of 20.3x forward P/E. Check out our free in-depth research report to learn more about why GOLF doesn’t pass our bar.
Ibotta (IBTA)
Market Cap: $751.1 million
Originally launched as a way to make grocery shopping more rewarding for budget-conscious consumers, Ibotta (NYSE:IBTA) is a mobile shopping app that allows consumers to earn cash back on everyday purchases by completing tasks and submitting receipts.
Why Does IBTA Worry Us?
- Revenue base of $367.6 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Projected sales decline of 10.1% for the next 12 months points to a tough demand environment ahead
At $26.45 per share, Ibotta trades at 6.8x forward EV-to-EBITDA. To fully understand why you should be careful with IBTA, check out our full research report (it’s free).
Flagstar Financial (FLG)
Market Cap: $5.38 billion
Tracing its roots back to 1859 and rebranded from New York Community Bancorp in 2024, Flagstar Financial (NYSE:FLG) is a bank holding company that offers commercial and consumer banking services, with specialties in multi-family lending, mortgage originations, and warehouse lending.
Why Should You Dump FLG?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 9.3% annually over the last two years
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 21% annually
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 6.7% annually over the last five years
Flagstar Financial is trading at $12.95 per share, or 0.8x forward P/B. If you’re considering FLG for your portfolio, see our FREE research report to learn more.
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