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 that don’t make the cut and some better choices instead.
Kohl's (KSS)
Market Cap: $1.50 billion
Founded as a corner grocery store in Milwaukee, Wisconsin, Kohl’s (NYSE: KSS) is a department store chain that sells clothing, cosmetics, electronics, and home goods.
Why Do We Avoid KSS?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Subpar operating margin of 3.3% constrains its ability to invest in process improvements or effectively respond to new competitive threats
At $13.27 per share, Kohl's trades at 9.4x forward P/E. Dive into our free research report to see why there are better opportunities than KSS.
Casella Waste Systems (CWST)
Market Cap: $5.48 billion
Starting with the founder picking up garbage with a pickup truck he purchased using savings from high school, Casella (NASDAQ: CWST) offers waste management services for businesses, residents, and the government.
Why Does CWST Give Us Pause?
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 5.3 percentage points
- Underwhelming 5.8% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Casella Waste Systems is trading at $86.10 per share, or 67.1x forward P/E. To fully understand why you should be careful with CWST, check out our full research report (it’s free).
LeMaitre (LMAT)
Market Cap: $2.49 billion
Founded in 1983 and named after a pioneering vascular surgeon, LeMaitre Vascular (NASDAQGM:LMAT) develops and manufactures specialized medical devices used by vascular surgeons to treat peripheral vascular disease and other circulatory conditions.
Why Does LMAT Fall Short?
- Smaller revenue base of $249.6 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
LeMaitre’s stock price of $109.12 implies a valuation ratio of 37.3x forward P/E. Check out our free in-depth research report to learn more about why LMAT doesn’t pass our bar.
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