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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Jack in the Box (JACK)
Market Cap: $369.5 million
Delighting customers since its inception in 1951, Jack in the Box (NASDAQ: JACK) is a distinctive fast-food chain known for its bold flavors, innovative menu items, and quirky marketing.
Why Do We Pass on JACK?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Earnings per share have contracted by 20.2% annually over the last six years, a headwind for returns as stock prices often echo long-term EPS performance
- 11× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $19.70 per share, Jack in the Box trades at 3.9x forward P/E. If you’re considering JACK for your portfolio, see our FREE research report to learn more.
Global Industrial (GIC)
Market Cap: $1.38 billion
Formerly known as Systemax, Global Industrial (NYSE: GIC) distributes industrial and commercial products to businesses and institutions.
Why Is GIC Risky?
- Annual revenue growth of 6.9% over the last two years was below our standards for the industrials sector
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 2.3% annually
- Diminishing returns on capital suggest its earlier profit pools are drying up
Global Industrial is trading at $35.99 per share, or 20.8x forward P/E. Dive into our free research report to see why there are better opportunities than GIC.
Plexus (PLXS)
Market Cap: $3.97 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 Do We Think Twice About PLXS?
- Annual sales declines of 3.4% for the past two years show its products and services struggled to connect with the market during this cycle
- Low free cash flow margin of 2.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Eroding returns on capital suggest its historical profit centers are aging
Plexus’s stock price of $147.22 implies a valuation ratio of 19.8x forward P/E. Read our free research report to see why you should think twice about including PLXS in your portfolio.
Stocks We Like More
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