Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. Keeping that in mind, here are three Russell 2000 stocks to avoid and better alternatives to consider.
Sunrun (RUN)
Market Cap: $3.19 billion
Helping homeowners use solar energy to power their homes, Sunrun (NASDAQ:RUN) provides residential solar electricity, specializing in panel installation and leasing services.
Why Is RUN Not Exciting?
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Cash-burning history makes us doubt the long-term viability of its business model
At $13.37 per share, Sunrun trades at 27x forward P/E. Dive into our free research report to see why there are better opportunities than RUN.
AMC Entertainment (AMC)
Market Cap: $1.35 billion
With a profile that was raised due to meme stock mania beginning in 2021, AMC Entertainment (NYSE:AMC) operates movie theaters primarily in the US and Europe.
Why Do We Pass on AMC?
- Annual revenue growth of 2.3% over the last two years was below our standards for the consumer discretionary sector
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
AMC Entertainment’s stock price of $1.82 implies a valuation ratio of 14.4x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why AMC doesn’t pass our bar.
Ladder Capital (LADR)
Market Cap: $1.31 billion
Founded during the 2008 financial crisis when traditional lenders retreated from commercial real estate, Ladder Capital (NYSE:LADR) is a real estate investment trust that originates commercial real estate loans, owns commercial properties, and invests in real estate securities.
Why Does LADR Fall Short?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 8.3% annually over the last two years
- Sales were less profitable over the last two years as its earnings per share fell by 17.9% annually, worse than its revenue declines
- Products and services are facing profitability challenges during this cycle, as seen in its flat tangible book value per share over the last five years
Ladder Capital is trading at $10.23 per share, or 0.9x forward P/B. If you’re considering LADR for your portfolio, see our FREE research report to learn more.
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