3 Russell 2000 Stocks We Approach with Caution

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.

Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.

Rush Enterprises (RUSHA)

Market Cap: $4.83 billion

Headquartered in Texas, Rush Enterprises (NASDAQ:RUSH.A) provides truck-related services and solutions, including sales, leasing, parts, and maintenance for commercial vehicles.

Why Is RUSHA Risky?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.1% annually over the last two years
2. Gross margin of 20.3% reflects its high production costs
3. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term

Rush Enterprises is trading at $63.42 per share, or 17.1x forward P/E. Dive into our free research report to see why there are better opportunities than RUSHA.

NeoGenomics (NEO)

Market Cap: $1.04 billion

Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ:NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.

Why Are We Out on NEO?

1. Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 3% annually
2. Negative returns on capital show management lost money while trying to expand the business
3. High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $7.95 per share, NeoGenomics trades at 48.8x forward P/E. To fully understand why you should be careful with NEO, check out our full research report (it’s free).

DigitalBridge (DBRG)

Market Cap: $2.81 billion

Transforming from a traditional real estate investor to a digital-focused powerhouse in 2021, DigitalBridge Group (NYSE:DBRG) is a global digital infrastructure investment firm that manages capital and operates assets across data centers, cell towers, fiber networks, and edge infrastructure.

Why Should You Dump DBRG?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 68.3% annually over the last five years
2. Earnings per share have contracted by 14.1% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Unprofitable operations could lead to additional rounds of dilutive equity financing if the credit window closes

DigitalBridge’s stock price of $15.35 implies a valuation ratio of 2.2x forward P/E. If you’re considering DBRG for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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