3 Russell 2000 Stocks We Find Risky

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. Keeping that in mind, here are three Russell 2000 stocks to avoid and better alternatives to consider.

Array (ARRY)

Market Cap: $1.18 billion

Going public in October 2020, Array (NASDAQ:ARRY) is a global manufacturer of ground-mounting tracking systems for utility and distributed generation solar energy projects.

Why Are We Out on ARRY?

1. Annual sales declines of 9.7% for the past two years show its products and services struggled to connect with the market during this cycle
2. Low free cash flow margin of -0.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Array is trading at $7.67 per share, or 10.2x forward P/E. Dive into our free research report to see why there are better opportunities than ARRY.

Neogen (NEOG)

Market Cap: $1.99 billion

Founded in 1981 and operating at the intersection of food safety and animal health, Neogen (NASDAQ:NEOG) develops and manufactures diagnostic tests and related products to detect dangerous substances in food and pharmaceuticals for animal health.

Why Should You Dump NEOG?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 2.1% annually over the last two years
2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3. Negative earnings profile makes it challenging to secure favorable financing terms from lenders

At $9.16 per share, Neogen trades at 32.7x forward P/E. If you’re considering NEOG for your portfolio, see our FREE research report to learn more.

CSG (CSGS)

Market Cap: $2.22 billion

Powering billions of critical customer interactions annually, CSG Systems (NASDAQ:CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.

Why Does CSGS Fall Short?

1. Sales trends were unexciting over the last two years as its 1.6% annual growth was below the typical business services company
2. Estimated sales growth of 2.3% for the next 12 months is soft and implies weaker demand
3. Diminishing returns on capital suggest its earlier profit pools are drying up

CSG’s stock price of $80.11 implies a valuation ratio of 16.4x forward P/E. Check out our free in-depth research report to learn more about why CSGS doesn’t pass our bar.

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