The Russell 2000 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.

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. That said, here are three Russell 2000 stocks to avoid and better alternatives to consider.

Marqeta (MQ)

Market Cap: $1.97 billion

Founded by CEO Jason Gardner in 2009, Marqeta (NASDAQ: MQ) is an innovative card issuer that provides companies with the ability to issue and process virtual, physical, and tokenized credit and debit cards.

Why Are We Wary of MQ?

1. Sales stagnated over the last three years and signal the need for new growth strategies
2. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
3. Suboptimal cost structure is highlighted by its history of operating losses

Marqeta’s stock price of $3.85 implies a valuation ratio of 3.3x forward price-to-sales. Check out our free in-depth research report to learn more about why MQ doesn’t pass our bar.

Mission Produce (AVO)

Market Cap: $714.3 million

Founded in 1983 in California, Mission Produce (NASDAQ: AVO) grows, packages, and distributes avocados.

Why Do We Think AVO Will Underperform?

1. Smaller revenue base of $1.31 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 11.2%
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

At $10.38 per share, Mission Produce trades at 8.9x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than AVO.

Hain Celestial (HAIN)

Market Cap: $264.4 million

Sold in over 75 countries around the world, Hain Celestial (NASDAQ: HAIN) is a natural and organic food company whose products range from snacks to teas to baby food.

Why Do We Steer Clear of HAIN?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
3. Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 41.2% annually, worse than its revenue

Hain Celestial is trading at $2.98 per share, or 6.1x forward price-to-earnings. Read our free research report to see why you should think twice about including HAIN in your portfolio.

Stocks We Like More

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