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 steer clear of and some alternatives to watch instead.
Apogee (APOG)
Market Cap: $790.5 million
Involved in the design of the Apple Store on Fifth Avenue in New York City, Apogee (NASDAQ:APOG) sells architectural products and services such as high-performance glass for commercial buildings.
Why Are We Out on APOG?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Falling earnings per share over the last two 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
Apogee is trading at $37.88 per share, or 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than APOG.
Meritage Homes (MTH)
Market Cap: $4.19 billion
Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE:MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.
Why Is MTH Risky?
- Backlog has dropped by 27.6% on average over the past two years, suggesting it’s losing orders as competition picks up
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $64.21 per share, Meritage Homes trades at 11.5x forward P/E. To fully understand why you should be careful with MTH, check out our full research report (it’s free).
Champion Homes (SKY)
Market Cap: $4.51 billion
Founded in 1951, Champion Homes (NYSE:SKY) is a manufacturer of modular homes and buildings in North America.
Why Does SKY Worry Us?
- Weak unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 9.1 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
Champion Homes’s stock price of $83.14 implies a valuation ratio of 22.1x forward P/E. Read our free research report to see why you should think twice about including SKY in your portfolio.
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