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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are three Russell 2000 stocks to avoid and better alternatives to consider.
Greenbrier (GBX)
Market Cap: $1.51 billion
Having designed the industry’s first double-decker railcar in the 1980s, Greenbrier (NYSE: GBX) supplies the freight rail transportation industry with railcars and related services.
Why Are We Hesitant About GBX?
- Declining unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Gross margin of 14% reflects its high production costs
- Negative free cash flow raises questions about the return timeline for its investments
Greenbrier’s stock price of $48.70 implies a valuation ratio of 0.5x forward price-to-sales. Read our free research report to see why you should think twice about including GBX in your portfolio.
AdaptHealth (AHCO)
Market Cap: $1.40 billion
With a network of approximately 680 locations serving patients across all 50 states, AdaptHealth (NASDAQ: AHCO) provides home medical equipment, supplies, and related services to patients with chronic conditions like sleep apnea, diabetes, and respiratory disorders.
Why Is AHCO Not Exciting?
- 2.1% annual revenue growth over the last two years was slower than its healthcare peers
- Issuance of new shares over the last five years caused its earnings per share to fall by 1.3% annually while its revenue grew
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging
At $10.61 per share, AdaptHealth trades at 12.2x forward P/E. To fully understand why you should be careful with AHCO, check out our full research report (it’s free).
Butterfield Bank (NTB)
Market Cap: $2.03 billion
Founded in 1784 as one of the oldest banks in the Western Hemisphere, Butterfield Bank (NYSE: NTB) provides banking, wealth management, and trust services to individuals and businesses in select offshore financial centers including Bermuda, Cayman Islands, and the Channel Islands.
Why Does NTB Fall Short?
- 1.6% annual revenue growth over the last two years was slower than its banking peers
- Net interest income is projected to tank by 43.1% over the next 12 months as demand evaporates
- Weak unit economics are reflected in its net interest margin of 2.7%, one of the worst among bank companies
Butterfield Bank is trading at $49.93 per share, or 1.8x forward P/B. If you’re considering NTB for your portfolio, see our FREE research report to learn more.
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