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.
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 that don’t make the cut and some better choices instead.
Shoe Carnival (SCVL)
Market Cap: $519.7 million
Known for its playful atmosphere that features carnival elements, Shoe Carnival (NASDAQ: SCVL) is a retailer that sells footwear from mainstream brands for the entire family.
Why Should You Sell SCVL?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Subscale operations are evident in its revenue base of $1.18 billion, meaning it has fewer distribution channels than its larger rivals
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
Shoe Carnival is trading at $19.10 per share, or 6.8x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SCVL.
Plexus (PLXS)
Market Cap: $3.69 billion
With over 20,000 team members across 26 global facilities, Plexus (NASDAQ: PLXS) designs, manufactures, and services complex electronic products for companies in aerospace/defense, healthcare, and industrial sectors.
Why Are We Cautious About PLXS?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.6% annually over the last two years
- Earnings per share lagged its peers over the last two years as they only grew by 5.2% annually
- Low free cash flow margin of 2.9% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Plexus’s stock price of $136.15 implies a valuation ratio of 18.7x forward P/E. If you’re considering PLXS for your portfolio, see our FREE research report to learn more.
John Bean (JBTM)
Market Cap: $6.22 billion
Tracing back to its invention of the mechanical milk bottle filler in 1884, John Bean (NYSE: JBT) designs, manufactures, and sells equipment used for food processing and aviation.
Why Are We Out on JBTM?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.6 percentage points
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $119.71 per share, John Bean trades at 19.3x forward P/E. Check out our free in-depth research report to learn more about why JBTM doesn’t pass our bar.
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