Small-cap stocks in the Russell 2000 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.
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 steer clear of and some alternatives to watch instead.
MasterCraft (MCFT)
Market Cap: $288.8 million
Started by a waterskiing instructor, MasterCraft (NASDAQ:MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Do We Think Twice About MCFT?
- Number of boats sold has disappointed over the past two years, indicating weak demand for its offerings
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 7.2%
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
MasterCraft’s stock price of $17.67 implies a valuation ratio of 15x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than MCFT.
Concrete Pumping (BBCP)
Market Cap: $284.4 million
Going public via SPAC in 2018, Concrete Pumping (NASDAQ:BBCP) is a provider of concrete pumping and waste management services in the United States and the United Kingdom.
Why Does BBCP Fall Short?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings per share have contracted by 17% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Free cash flow margin dropped by 9.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Concrete Pumping is trading at $5.25 per share, or 11.9x forward price-to-earnings. If you’re considering BBCP for your portfolio, see our FREE research report to learn more.
3D Systems (DDD)
Market Cap: $287.3 million
Founded by the inventor of stereolithography, 3D Systems (NYSE:DDD) engineers, manufactures, and sells 3D printers and other related products to the aerospace, automotive, healthcare, and consumer goods industries.
Why Should You Sell DDD?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 7% annually over the last five years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $2.07 per share, 3D Systems trades at 0.7x forward price-to-sales. To fully understand why you should be careful with DDD, check out our full research report (it’s free).
Stocks We Like More
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